Housing Sales Boom Keeps Inventories Slim
The Building Industry Assn. of Southern California had planned an elaborate promotion of new homes for sale throughout the Southland.
Enthused builder members described it as a “Home Mart” event, on a scale they had never before attempted.
But just before party time, 70% of the participating builders called in to Kenneth W. Willis, executive vice president of the BIA-SC, to report, not sheepishly, they had nothing left to sell.
While all the planning was taking place, their product inventories had disappeared.
Some longtime builders reported camp-outs at their respective tracts--the first they had ever experienced in their many years in the business.
“After awhile, even the television crews stopped coming out to cover the camp-outs,” the builders told Willis.
Well, the big anticipated summertime sales event had to be canceled.
Under ordinary circumstances, that would have been an anathema to a salesperson, but what do you do when sales are so good, so fast?
Elsewhere in the state, as other measures of the strength of the current California housing market, builders are finding little resistance to asking prices, and some anxious Bay Area buyers reportedly are willing to pay an 8%-10% premium for immediate availability of homes.
Throughout Southern California, sales reports are only a little less than flamboyant.
A summary of the four-week sales period ending Aug. 3 at new housing tracts in the red-hot Inland Empire--both by mercurial and sales standards--shows 557 homes were sold.
The Marketplace, a sales and traffic analysis report of Southland residential projects, counted 25,163 visitors at 65 tracts in San Bernardino and Riverside counties during that span when 745 entered the sales stream but only 188 fell out, leaving net sales of 557. That’s a weighty .747 batting average.
Once again, these sales reports demonstrate the volatility of the California housing market and the continuing strong desire for home ownership, especially at a time when mortgage interest rates remain under 11%.
The volley of home sales indicates the depth of the present market and coincides with last week’s great deluge of media coverage in the wake of the announced details of the pending tax reform bill in Washington.
In essence, the new tax regulations will end the longtime honeymoon that real estate tax shelters have enjoyed. But the lawmakers treated home ownership kindly and unscathed, politically. They left intact the hallowed mortgage interest deductions for both principal and second homes.
The Marketplace report, based on sales and traffic data provided by Great Western Real Estate and Builder Sales Corp., pinpoints the sales leaders, Acacia Construction’s Acacia Park in Upland and Lewis Homes in Ontario, both with 38 net sales and Kulberg Ltd., with 37 sales at its Rancho California Winchester Creek tract.
The Los Angeles-Ventura counties market ranked second with 175 actual sales from among 235 starters. The traffic count was about half--13,169--of the Inland Empire home shoppers during the four-week period. Orange County sales totaled 108 and San Diego County registered 72.
While the sales phase of the industry is doing so well, planned construction is rebounding, based on the number of building permits issued, according to the California Building Industry Assn.
On a seasonally adjusted annual rate basis, the 150,000-units for June represented the highest annual rate for single-family homes since mid-1978 and was 40.4% greater than the June, 1985 mark. June production also showed a 7.9% increase over the rate for May.
Total output for all construction was 300,600 units. The latter amount is up from the May rate of 289,000 units and a 20% increase from the 249,900 unit annual rate posted in June, 1985.
Forrest Maurer, president of the California Building Industry Assn., a Sacramento builder, credits the growing expansion of single-family construction to lower mortgage rates and the continuing desire for home ownership.
The association’s Burbank-based Construction Industry Research Board had predicted that single-family production this year would reach the 133,000 mark, a 17% increase over 1985. But if the present rate of production continues, the increase obviously would be much higher.
Multifamily housing production, expected to drop in the wake of changes in tax shelter regulations for financing of apartment complexes, only showed a slight increase over May. For June, the seasonally adjusted annual rate was pegged at 150,500 units, up only 0.4% over May and 5.2% over June, 1985.
Without question, Maurer added, the hottest spot in the state for the first half of this year was the two-county Inland Empire, where total housing output was up 74% from the same period a year ago.
How is the first-time buyer coping in this hectic market?
Greg Bowcott, a longtime lender and executive vice president of the San Diego-based Gibraltar Money Center, has some advice. Granted that now, with interest rates at eight-year lows, is an excellent time to buy a home or condominium, it’s not all that simple for the novice buyer to venture into the market.
Because demand is outstripping supply, sellers are negotiating aggressively “for the best buyer,” he said.
“Sellers are reluctant to deal with first-time buyers who have minimal down payments, cannot bid up the asking price as easily as those with existing equity, or might have difficulty in qualifying for a traditional first mortgage.”
Also, the Federal National Mortgage Assn. and the Federal Home Loan Mortgage Corp., two principal buyers of mortgages in the secondary market, have cinched up underwriting rules on loan-to-value ratios and debt burden requirements, making it more difficult for the first-time buyer to qualify for a loan, even though rates are at their lowest in this decade.
For the frustrated buyer, Bowcott suggests looking into the condominium market, where a sizable inventory could set the stage for a very good buy and a “starter home.”
