1993 May Provide Balm for Battered Housing Industry : Homes: While 1992 sales were down 12%, traffic at builders’ models held fairly steady, indicating pent-up demand.
New-home sales in Orange County may be down 12% from last year, but the number of shoppers trooping through builders’ models remains fairly constant.
And that’s a sign of pent-up demand that could help make 1993 a healing year for the beleaguered building industry.
“It shows that there is demand but that the potential buyers still want deals,” said John Shumway, president of Market Profiles, a Costa Mesa real estate marketing consultant. “People are still waiting for prices to come down even more in Orange County, so they are out there shopping, turning over every stone looking for that deal.”
New-home prices in the county have dropped about 10% in the past year, and Shumway cautioned that the bottom may have been hit. Prices in Orange County “might go down 2% or 3% more,” he said. But builders are no longer saddled with huge inventories of completed but unsold homes that they are desperate to sell at any price, he said, and that removes a big incentive for deal making.
Bonnie Benton, a Laguna Niguel consultant who analyzes home shopper and sales reports, said the latest tally from La Jolla-based Hanley Report shows that Orange County has one of the smallest inventories of unsold new homes in the Southland, with 2,631 units on the market as of Nov. 29.
At the current pace of 94 sales a week, less than seven months would be needed to eliminate the Orange County inventory. That compares to eight months in San Bernardino County, 8.5 months in San Diego, 12.6 months in Los Angeles and 13.4 months in Riverside.
Helping to keep the local inventory down is builders’ reluctance to start new projects without some sign from consumers that they are willing to start buying again.
A report issued Wednesday by the Construction Industry Research Board in Burbank shows that home builders in Orange County are not planning to speed up building activity in the next few months.
Through November, the industry-supported research board said, builders had obtained permits for construction of just 5,570 homes and apartments in Orange County--down from 6,015 units for the first 11 months of 1991 and a far cry from the 23,483 units for which permits were issued at the height of the county’s building boom in 1987. Completing a house typically takes four to six months once the permit is issued.
Much of the decline has been in apartment construction. Permits were issued for only 2,287 multifamily units in the first 11 months this year, down from a high of 14,848 units in 1987, when federal tax law still provided incentives to build rental units.
Builders obtained permits for 3,283 single-family homes through November, down 1.8% from the same period last year and off 69% from the county’s high of 10,679 homes in the first 11 months of 1988.
The good news is that, as grim as the situation is, Orange County is better off than many other areas.
Thus, though the Hanley Report figures for new-home sales and shopper traffic in the five Southland counties shows sales down 17% through Nov. 29 and the number of people visiting model complexes off by 20%, in Orange County sales declined only 12%, and shopper traffic was down just 5%.
And the number of home shoppers in Orange County is considerably higher than in other counties, illustrating that people are out in force looking for something to make them want to buy, Shumway said.
A total of 692,096 people visited various Orange County new-home sales offices through Nov. 29, a 27% increase over the next-highest tally of 544,106 shoppers in Riverside County.
That sizable traffic count is needed, however, because Orange County homes are pricier than those in surrounding counties, and fewer than one of every 100 shoppers ends up buying.
Orange County home builders’ “capture rate” of 0.86%--or 86 sales for every 10,000 shoppers--is the lowest in the region and compares with rates of 1.5% in Los Angeles County, 1.3% in Riverside, 1.2% in San Bernardino and 1.1% in San Diego.
So it helps that Orange County remains a desirable address--despite the region’s economic woes and high housing costs. The median selling price--half higher and half lower--is $292,990 for single-family detached homes this year.
That attractiveness helped sales agents in Orange County hang on to more potential buyers than their counterparts in the rest of the region--33% of all sales contracts here were canceled by the buyers, for reasons ranging from a simple change of mind to failure to qualify for a loan. The cancellation rate was 34% in San Diego County, 37% in Los Angeles, 42.3% in Riverside and 42.7% in San Bernardino.
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Silver Lining?
Although the housing market is in bad shape in Orange County, the situation is better here than in the rest of Southern California, a tally of sales-office traffic and sales contracts shows.
Shoppers Sales opened Sales completed County 1991 1992 1991 1992 1991 1992 Los Angeles 682,712 507,057 14,671 12,038 9,873 7,581 Orange 726,352 692,096 9,856 8,897 6,754 5,955 Riverside 729,651 544,106 15,388 12,040 9,205 6,924 San Bernardino 520,538 408,336 9,940 8,289 5,898 4,743 San Diego 682,246 528,728 10,704 8,990 7,026 5,924
Source: Hanley Report
