Southland Builders Optimistic on Market
The latest housing forecast: Sunny in California and the West, and gloomy just about everywhere else.
A survey this month by the National Assn. of Home Builders and Wells Fargo & Co. found that optimism among builders of single-family homes across the country fell to its lowest level since November 2001, because rising mortgage rates and rapid price increases have finally slowed demand.
But count Jay Moss as one West Coast builder who belongs to the optimists’ club. “As long as the economy’s good here and Southern California is an attractive place to live, buyers will be there,” said Moss, president of KB Home’s Southern California division.
Unlike the early 1990s, when aerospace layoffs “took the starch out of the market,” Moss said, today builders are having a harder time keeping up with demand in part because government regulations act as curbs on overbuilding.
“We are not providing the amount of housing that the demographics and the growing population are demanding -- that’s why” regional builders remain positive about the housing market, Moss said.
Only builders in the West registered greater confidence in market conditions in April, as the NAHB/Wells Fargo housing market index rose to 70 in the Western states, up from 66 in March. A number over 50 indicates that more builders view conditions as good than poor, the national builders group said.
Contrast that with the trade group’s index of overall builder confidence, which fell to 50 in April from a revised reading of 54 in March. The nationwide index has dropped 18 points since October, a record for a six-month period. The Northeast, Midwest and South all reported lower confidence scores this month than in March.
Builders in most parts of the country say rising home prices, coupled with rising mortgage rates, are tempering the ardor of prospective buyers. Last week the average rate on a 30-year, fixed-rate mortgage rose to 6.49%, the highest since July 2002, according to mortgage giant Freddie Mac.
“Different regions peaked at different times,” said David Seiders, chief economist for the National Assn. of Home Builders. Higher borrowing costs and slower price appreciation have turned off some speculators, and that has slowed the pace of new-home sales, he said.
Sales of new single-family homes in the U.S. hit a record 1.282 million in 2005, up 6.6% from the previous record of 1.203 million in 2004, the Washington-based trade group said.
With fewer investors expected to purchase new homes, Seiders is forecasting a 7% decline in single-family home sales nationwide this year.
Nonetheless, the cost of housing continues to go up in much of the country, including the Southland. Last month the median sale price of a Los Angeles County home hit $506,000, the first time it topped the half-million-dollar mark. That price was up 15% from a year earlier and 3% higher than in February, according to DataQuick Information Systems.
And the number of newly built homes sold in Los Angeles rose 8.6% in March, according to DataQuick, even as the number of existing-home sales fell 12%. “The fundamentals are still in place and homes are still selling,” said Adam McAbee, vice president of new-home consulting firm Sullivan Group Real Estate Advisors.
The local housing market seems to be holding up better because the area’s economy is more diverse and job creation remains strong, thanks in part to growth in tourism, trade and aerospace.
Nonetheless, the housing market in Southern California and elsewhere is slowing. A year ago, Western builders tallied their confidence score at 81 and the market index peaked in the West at 91 in October.
“Things are converging to take some of the heat out of the hottest markets,” Seiders said. “But we’re transitioning from an unsustainable pace to a getting back to Earth.”
