Sitting On Empty Nests : Home Sales: A glut of unsold homes has created some of the best opportunities for bargains in years. Buyers can take advantage of price discounts, free upgrades, low-interest loans and other bonuses.
While soaring prices and a softening economy began putting the brakes on sales of existing homes last spring, the slowdown has now spread to California’s $24-billion new-home market too.
Signs of the downturn are as numerous as the now-idled bulldozers that just a year ago were turning huge parcels of raw land into bedroom communities seemingly overnight.
* In Moorpark, builder Urban West Communities slashes $40,000 off the price of the final 54 homes in its Creekside development to spark sluggish sales. Homes originally priced at about $284,000 now go for $244,000; the builder asks $295,000 for houses once listed at nearly $335,000.
“We’re willing to negotiate with buyers now, which is something we really didn’t do over the past three or four years,” said Kathy Dantagnan, the company’s vice president of sales and marketing.
* Griffin Homes offers two free tickets for a weeklong Mediterranean cruise to anyone who’ll buy a home in its nine new Southland tracts. They range from $130,000 “starter” homes in Moreno Valley to $800,000 estate properties in Canyon Country.
* In Ventura County, Weston Development offers $5,000 in free upgrades and mortgage subsidies worth thousands more to buyers at its 134-unit single-family tract in Port Hueneme and a 66-unit townhouse development in the city of Ventura.
“We have to spur sales, and this is a good way to do it,” said Bob Jones, the company’s vice president of marketing.
* The state’s biggest single-family home builder, Kaufman & Broad Home Corp., offers to pay up to $5,000 of its buyers’ closing costs at half of the 25 tracts it has open in the Southland.
“All of us knew that a slowdown was coming, but nobody expected sales to deteriorate so fast,” said Joseph A. Gallagher, whose company, Leisure Technology, recently slashed $50,000 off some of the $500,000-plus custom homes it is building in Santa Clarita.
Across Southern California, home builders large and small seem willing to deal. The Times interviewed 24 builders--including heavyweights such as Kaufman & Broad, J. M. Peters Co. and Marlborough Development--and found only one company that wasn’t offering price discounts, free upgrades, low-interest loans or some other bonus.
The statistics speak for themselves. According to the most recent figures compiled by the Meyers Group, a Los Angeles-based real estate information and consulting firm, sales of new single- family homes in the fast-growing Antelope Valley are down 44% from a year earlier.
New-home sales are off 43% in the San Gabriel Valley and a staggering 62% in the San Fernando Valley/Santa Clarita area.
In other parts of the Southland, sales are down 52% in San Diego, 38% in San Bernardino and 42% in Orange County.
Construction, though, hasn’t declined nearly as fast--and the glut of new homes on the market is the primary reason why builders are offering such big concessions.
The Meyers Group reports that there are now 1,177 new houses for sale in the Antelope Valley, more than twice the number of a year ago. The 1,031 homes for sale in the San Fernando/Santa Clarita area is nearly three times higher.
More than 400 new houses are on the market in the San Gabriel Valley, compared to a paltry seven homes available a year earlier.
About 1,710 new homes are for sale in San Diego County, up 16% from a year earlier. The 1,348 homes for sale in San Bernardino are up 38%.
In Orange County, the 1,575 new houses on the market is nearly three times the number for sale a year earlier.
Suffering worst is the “move-up” new-home market--homes geared toward people who already have a house, but want one that’s nicer and more expensive.
“The most softness in L.A., Orange County and San Diego is in the $300,000- to $600,000-range, and in the Inland Empire it is homes that sell for $200,000 and up,” said Jeffrey S. Meyers, president of the Meyers Group.
“A lot of it has to do with the softer resale market. You can’t buy a new home if you can’t sell your old one, and right now, a lot of people can’t sell.”
The slowdown is wreaking havoc with many builders’ profits. Although most privately held companies won’t release earnings or sales reports, some builders confide that their net income is down between 20% and 40% from a year ago.
Publicly held companies can’t hide the bad news. J. M. Peters Co., which caters to the move-up market, announced last month that its earnings dropped 39% in its most recent nine-month period, and sales were down nearly 50% from a year earlier. Jittery investors on Wall Street soon sent the stock to a 52-week low.
While the slowdown is bad news for builders, it’s great news for would-be home buyers. Price discounts and other incentives, combined with some of the lowest mortgage rates in a decade, are allowing consumers to strike bargains unheard of just one year ago.
LeAnn and Curtis Mathews, for example, have spent nearly two years shopping for a new home. They even entered lotteries at some hot-selling projects, where builders pulled names out of drums to determine who’d be able to buy their limited number of houses.
“Then all of a sudden, the market cooled down and we were in the driver’s seat,” LeAnn Mathews said. “We just bought a brand-new, four-bedroom home here in Moorpark and the builder knocked $40,000 off the sales price.”
Lance Wilhoite and his wife, Rita, recently bought a new $321,000 home in Port Hueneme from a builder who agreed to an $8,000 mortgage-payment subsidy.
“I can’t believe we got such a great house and a great deal,” Wilhoite said. “We didn’t ask for the $8,000, but we sure weren’t going to turn it down.”
Yet despite the price cuts and other incentives, some people still aren’t buying.
“We started looking a couple of months ago, but we still think everything is overpriced,” said Tim Johnson as he and his wife toured a Riverside development where the builder is offering mortgage subsidies worth more than $5,000 and also is willing to pay another $5,000 in closing costs.
“When you’re talking about spending $200,000 or $250,000, what difference does $5,000 or $10,000 make? Besides, there are deals like this being offered all over the place.”
The slow sales pace and price-discounting is eating into many builders’ bottom-lines. That’s a sharp turnaround from a year ago, when some builders were literally raising prices overnight and still selling out their housing tracts in record time.
“The standard profit margin is probably around 14% to 18% of the sales price, but now some of the builders are working on less than 10%,” said Phil Yasskin, president of the Los Angeles/Ventura County division of J. M. Peters Co. “Just last year, some builders had margins in the 20% to 30%-range.”
In a sense, builders are caught between a rock and a hard place. They don’t like to cut their prices or offer other incentives, but the alternative--letting their homes sit empty--is a costly proposition.
“I’d say it costs a builder about $85 a day for every $300,000-home that he has sitting empty,” said Ed Parker, vice president of sales and marketing at Marlborough Development. “First, you’re paying interest on your construction loan. And then there are all sorts of other expenses, like maintenance costs to keep the homes looking brand-new.
“If you take $85 and multiply it by the number of homes you’ve got sitting empty, you’re talking about a fairly significant cost that you’re incurring every day. The longer your homes sit empty, the more you lose.”
Some consumers don’t feel much sympathy for developers’ dwindling profits. “I think builders have been gouging us for years,” said Laura Bernstein, who’s been sporadically looking at new homes in Orange County since 1988.
“I went to a tract a year ago where the first homes sold for $225,000. A few months later, the second phase was selling for $265,000 or $275,000,” she said. “They were just like the ones in the first phase, but the builder had jacked up the price $50,000 because he knew he could get it.”
Such steep price hikes are a thing of the past. But while some home builders are simply cutting prices to lure more buyers, others have adopted more offbeat incentives.
“Our most popular program is what we call our ‘Winter Payback Program,’ ” said Debra Bernard, director of marketing for building giant Kaufman & Broad.
“If you buy a home in some of our subdivisions, we’ll make the rental payments or mortgage payments on your current home until you close escrow on the new house.”
Several companies have launched costly mortgage-rate buy-down programs, where the builder essentially subsidizes the buyers’ monthly payments for one, two, even five years.
For example, the Baldwin Co. is offering buyers in three San Diego County developments an initial interest rate of about 7 1/4%, nearly three percentage points below market rates. The rate gradually rises over 18 months to about 10 1/4%, where it stays for the rest of the 30-year term.
Others are being even more generous. To spur sales at its Oceanside project, Leisure Technology recently offered prospective buyers cut-rate mortgages and $15,000 in credits that could be used for landscaping or upgrades.
For buyers having trouble selling their current homes, Leisure Tech would also arrange a 90-day swing loan to help them complete their purchase in Oceanside--and the builder would make all the interest payments.
“A lot of people wouldn’t be able to close escrow without it,” said Gallagher, president of the company’s Southern California division.
Few experts believe the new-home market is headed for the type of meltdown that occurred in the 1980s, when construction plunged after interest rates soared to record highs and recession gripped the nation.
“There won’t be any crash,” said Ben Bartolotto, an economist and director of the nonprofit Construction Industry Research Board. “Interest rates are under control and there’s no recession around the corner.
“Demand for housing is still pretty strong. It’s not as strong as it was a year or two ago, but it’s still there.”
Still, the magnitude of price cuts and other costly incentive programs has left some experts wondering if many builders are overreacting to the slowdown.
“Every builder knows that sales go down in the winter, and everybody knew that we couldn’t sustain the kind of sales and price increases that we saw over the past couple of years,” said Sharon Dyer of Watt Homes, a builder who is offering little in the way of bonuses.
“Most of us thought the market would level off in the last quarter of ‘89, and it did. So what happened? Some builders panicked, anyway.”
Exactly how long such generous incentive programs will last is anyone’s guess. Some say they’ll disappear in the spring, which is the prime home buying season. Others say the bonuses will last into the summer or early fall, because it will take at least six months before the inventory of both used and new homes will go back down to their normal levels.
One factor that could tend to rush the demise of more lucrative incentive programs is an expected slowdown in new construction. The Construction Industry Research Board predicts that 143,000 new single-family homes will be built in California this year, an 11% decline from the 160,000 houses built in 1989.
“That’s not a real significant drop, but it will help put inventories back in line,” said CIRB’s Bartolotto. “Sales will pick up again, and you won’t see builders making the kinds of concessions that they’re making today.”
For now, though, buyers are clearly calling the shots in today’s new-home market.
“We’ve left a a 30-year-old house that’s a ‘money pit’ and bought a gorgeous, brand-new home in a good family neighborhood,” said LeAnn Mathews, the new Moorpark homeowner. “And, we got a $40,000-discount to boot. What else could you ask for?”
