REAL ESTATE : High Prices Blamed for Steep Drop in Sales of New Homes

In most businesses, a sales decline is rotten news.

But even though home sales plummeted in Orange County during the last three months of 1989, the situation isn’t as grim as the numbers indicate.

Sales of new homes in the county fell 51% in the fourth quarter, to 1,266 units from 2,584 in the third quarter. And sales for the entire year were off 21% from a year earlier, to 8,789 new single-family homes and condominiums.

At the same time, inventory soared. The year ended with 2,100 units unsold, most still under construction but more than 300 completed and sitting empty.

A disaster?

No, says Kelly McDermott, vice president of Market Profiles, the Costa Mesa consulting firm that complied the data.

“If we were in a recession, and if we had double-digit interest rates, then we would have a problem,” McDermott said.

“But what we are really seeing is the effect of housing prices that have gone too high too fast. Now they are correcting and the pendulum is swinging back. Buyers haven’t left the market. There is still a lot of demand for homes in Orange County,” she said.

The drop in new homes sales, accompanied by a slight decline in the median sales price in the fourth quarter--down 6.3% in North Orange County, to $305,357, and down 4% in South Orange County, to $279,921--is merely a temporary pause as the pendulum reaches the apex of its swing before it changes direction, McDermott said.

The Market Profile data divides the county into southern and northern portions and shows that most of the building and sales activity, as well as most of the unsold inventory, is in the south.

A total of 6,401 new units were sold in South Orange County during 1989--73% of the year’s total sales for the county. In the fourth quarter, home builders in the south sold 682 units, or 54% of the countywide total.

As the year ended, however, 88.7% of the total inventory of unsold new homes--1,862 units--was in the southern half of the county.

Most of that unsold inventory, about 56%, consisted of homes priced at $350,000 and up. In fact, there was no appreciable inventory of detached housing in any part of the county priced under $250,000.