New Home Sales Drop 30% in 4th Quarter as Steep Prices Cool Market, Report Says

Orange County home buyers, who snapped up nearly every new house and condo put on the market for months, may have finally been scared off by the area’s sky-high housing prices.

According to the Meyers Group, a Corona consulting firm, the number of new houses and condominiums sold during the fourth quarter plunged by 30% to 2,021 from the third quarter.

The median price of a new detached house dropped 6% to $293,500 in the fourth quarter, Meyers reported Wednesday. The median price of a condo, however, rose 13% to $166,900.

Even more telling than falling sales and soft prices, the firm said, is that there were far more houses on the market at the end of the quarter than there were last quarter. The inventory of unsold homes rose 113% to 1,057 units during the quarter.

But the firm said it expected the county’s growing population to continue to buy a large number of new homes. Both sales and prices--already among the highest in the nation--are expected to resume their climb soon.

“While steep pricing and the slow winter season have temporarily cooled Orange County down, the market will regain its momentum by next quarter,” Meyers said in its quarterly report.

The drop in prices should be regarded as “a temporary plateau, not a trend,” the firm said.

Home sales normally slow during the fall months. But this year, according to Meyers, more than seasonal factors are at work.

Compared to the fourth quarter of 1987, builders this year sold 21% fewer detached houses, with 1,282 in 1988 contrasted with 1,636 last year.

For condos, the year-to-year decline was even more precipitous at 25%, with 739 units sold this year contrasted with 990 last year.

The southern half of the county--where most new home construction occurs--had the most fourth-quarter sales at 1,307, down 22% from the previous quarter. Sales in coastal and central portions of the county were off too. The only area that saw an increase was the northern section of the county, where virtually all sales are condominiums.

“You have consumers saying, ‘Wait a minute. I’ve got to catch my breath’ because of the prices,” said W. Steven Johnson, a Meyers vice president. “You can tell things are slowing down by the unusually large number of houses left unsold at the end of the quarter.”

Moderate price increases at least through the first half of next year should bring more buyers into the market, although not enough to repeat the “feeding frenzy” earlier this year, Johnson said.

By the third quarter of 1989, prices may start jumping again, perhaps as much as the $10,000 monthly increases seen through much of this year.

And 1989 will end with another slight downturn, much the same as this year’s, which Johnson called a “typical adjustment” in the market.

One local builder said that while he has seen sales slow around the county during the fourth quarter, he did not perceive anything like a 30% decline.

Nevertheless, high prices have made some houses more difficult to sell, said Mark L. Frazier, president of Irvine’s Barratt American Inc.

“This is more than just seasonal,” Frazier said. “Heavy-duty price increases have got many people to the point where they can’t afford much of anything anymore.”

While the more lavish developments will continue to sell to well-heeled buyers, more modest subdivisions outside master-planned communities or without good views will be a tougher sell, Frazier said.

Meanwhile, most of the people who are buying are those who already own a home and who are trading up to more lavish quarters on the equity accrued in their old house.

New homes are getting bigger and glitzier in Orange County, with the most popular floor plan for a single-family house containing four bedrooms. Such homes accounted for half the houses built in the county during the quarter.

NEW-HOME MARKET IN COUNTY

FOURTH-QUARTER SALES

% Change from Market Area Attached Detached Total 3rd Quarter Coastal North 74 141 215 -35 North 7 335 342 +22 Central 114 43 157 -75 South 544 763 1,307 -22 Total 739 1,282 2,021 -30 FOURTH-QUARTER INVENTORY Coastal North 21 9 30 +131 North 2 39 41 -20 Central 146 80 226 +38 South 317 443 760 +180 Total 486 571 1,057 +113

% Change from 1987 Market Area 4th Quarter Coastal North +169 North -3 Central -79 South -10 Total -23 FOURTH-QUARTER INVENTORY Coastal North -72 North -69 Central -23 South -8 Total -22

Source: The Meyers Group