Despite favorable mortgage rates and signs of economic growth, sales of new homes in California in July plunged nearly 20% from the same month last year, according to reports released Tuesday.
Economists hesitated to suggest that the decline signals deeper problems for the state's struggling economy, saying that monthly sales figures for new homes are highly volatile. However, July's sharp drop reflects the continued difficulties of California's troubled residential real estate market, an important indicator of the state's economic health that has been struggling to recover from more than five years of sagging prices and sales.
The sharp drop came as new home sales nationwide improved for the third month in a row.
"There is an ongoing problem of confidence--people don't want to get into the market unless there is a positive return on one's investment," Tom Lieser, associate director of the UCLA Business Forecasting Project, said of the California figures.
In California, sales of newly constructed homes and condominiums totaled 2,916 in July, down 19.2% from the same month last year, according to Dataquick Information Systems, a La Jolla-based real estate information firm. Compared to June, July's sales were off 28.6%.
New home sales were even worse off in Southern California, where July sales fell 26% from last year and 35% from June, according to TRW REDI Property Data, a real estate information company based in Anaheim. Figures from Dataquick and TRW are based on actual sales records, and thus are comparable.
In June, California new home sales had been 16% higher than in May, according to Dataquick--an indication of the volatility of the figures.
California's poor performance in July apparently dragged down figures for the entire western United States, where the seasonally adjusted, annualized rate of new single-family home sales fell 13% from June to 281,000, the U.S. Commerce Department reported Tuesday.
On a nationwide basis, the pace of new single-family homes sales increased 0.4% in July from June to a seasonally adjusted annual rate of 715,000--the third month-to-month increase and the highest level since March, 1994. The increase was the result of a robust housing market in the South, where the July sales pace jumped 22.5% from the previous month.
Nationwide home sales have benefited from attractive interest rates and strong consumer confidence. The Conference Board, a New York-based economic research group, said Tuesday that its index of consumer confidence rose seven points to a revised 101.4 in July from June. The index dropped slightly in August but remained at a relatively high 101.0 points.
Meanwhile, rates on 30-year, fixed-rate mortgages averaged 7.61% in July, up slightly from 7.53% in June but well below the 9% level in January.
But many California home builders say they have failed to receive the jump in sales they expected from the lower rates. "They have not had much of an effect," said Randall Lewis, executive vice president for Upland-based Lewis Homes.
"Some people may be waiting for them to keep going down . . . it's a false hope," Lewis said.
Los Angeles-based Kaufman & Broad Home Corp. said its developments in Arizona, Colorado, Nevada and Utah have continued to outperform its projects in California, where the firm ranks as the state's largest home builder.
"The market is still very, very tough, particularly in California," said Jeffrey Charney, vice president of marketing for Kaufman & Broad. "You've got a lot of supply chasing weak demand."
During the first seven months of 1995, California new home sales have fallen 16% below the same period last year, according to TRW.
Orange County, however, fared much better in new home sales than the state and five other counties in Southern California in the first seven months. Sales of new homes, which account for about 25% of the total residential market, fell 3.4% in Orange County, compared with a 5.4% decline in Los Angeles County. Sales dropped 34.4% in San Bernardino County, 23.2% in Riverside County, 18.1% in San Diego County and 8.8% in Ventura County.
Meanwhile, building permits in the state have been filed at the lowest rate of the decade, according to economists.
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Home Sales in State
Monthly sales of new homes, in thousands of units:
July 1995: 2,916
Source: Dataquick Information Systems
U.S. New Home Sales
Seasonally adjusted annual rate, in thousands of units:
July 1995: 715
Source: Commerce Department