O.C.’s Inventory of New Houses Declines by 8.2%

The inventory of new homes in Orange County fell 8.2% in the most recent quarter, a report released Wednesday said, indicating that the market for new homes may be nearing bottom.

The number of new homes finished or under construction in the county was 3,340 in the quarter ending Feb. 1, compared to 3,637 in the previous quarter, according to the Meyers Group, a real estate consulting group based in Chino.

The drop in inventory comes after months of efforts to sell units by offering steep discounts and lucrative incentives, or by highly publicized auctions. The fall in inventory is the first in two years, when the market was booming.

“Aggressive incentives offered by builders have increased sales activity over the past several months, which has reduced inventory, both standing and under construction,” said Meyers Group President Jeff Meyers.

The drop in inventory comes at a time when building is at a standstill. Builders, either concerned with unloading completed homes or unable to obtain financing for new construction, are planning few new units. There were only 129 permits issued in January for home construction in the county. The monthly total was believed to be the lowest in 40 years.

Local economists also said the inventory drop probably presages a shortage of new homes when the housing market does come back, probably by the end of this year. There won’t be enough homes available to satisfy demand, leading to another run-up in prices and a resurgence of the resale market as well, they said.

“There’s little question now we’ve created a floor in housing prices,” said Chapman College economist James Doti.

Meyers said that he expects today’s supply of new homes to be depleted in six to nine months and that few new houses will be started in that time. He said several factors could result in surging demand: improved consumer confidence; drought-related building moratoriums; a continuation of the credit crunch for developers; and lower interest rates.

All this means housing prices are likely to firm up by midyear.

“I’m fairly optimistic that by midyear, we’re going to be having a turnaround,” said Phillip E. Vincent, vice president and economist for First Interstate Bank in Los Angeles. “The war’s over, confidence will be up, and interest and mortgage rates are at lows last seen in 1987 or so. Also, population growth statewide has been incredible.”

Vincent said the lending picture for builders “can only get better.” He said bank regulators have been extremely tough since the savings and loan debacle, but there are signs they are easing up. Also, the Federal Reserve’s policy on money supply growth will help builders, he said.

The Meyers Group study bears out what builders have been saying for several months now.

Peter Ochs, president of Newport Beach’s Fieldstone Co., said his inventory could be wiped out by April 1 if sales keep going the way they have been.

J.M. Peters Co. of Newport Beach, which sells houses in the range of $350,000 to $750,000, began trying to liquidate its inventory of 340 homes in November and now has a standing inventory of only 170 homes.

Orange County Housing Inventory Figures for the fourth quarter of 1990 suggest that the huge inventory of unsold homes is finally beginning to shrink. 4th Q ‘90: 3,340 Source: The Meyers Group