The softer side of ........
WARNING.... SUPER LONG ARTICLE... MOSTLY FOCUSING ON CALIFORNIA, BUT POSSIBLY GOOD BAROMETER FOR THE REST OF U.S.
Housing Market Shows Further Signs of Cooling
By JAMES R. HAGERTY and RUTH SIMON
Staff Reporters of THE WALL STREET JOURNAL November 15, 2005;
The pace of U.S. home sales is showing further signs of slowing, amid a widening gap between sellers' asking prices and the amount skittish buyers are prepared to offer, according to an industry survey, real-estate brokerage firms and housing economists.
Rising mortgage rates, higher energy costs, widespread talk about the risk of a "bubble" in housing and a surge in the number of homes on the market are among the factors behind the apparent slowdown. They have combined to make home shoppers more cautious, economists and real-estate brokers say. Buyers are taking their time to look for bargains, while many sellers have put unrealistically high price tags on their homes. That leads to a standoff, causing the number of sales to drop -- a classic ending to a period of unusually rapid house- price increases.
In a survey conducted last week, real-estate consulting firm Real Trends found that the number of home-purchase contracts signed last month dropped 8% from a year earlier at 48 of the nation's large real- estate brokerage firms. Those brokers responded to an email poll sent to 80 brokerage firms. To be sure, home sales remain strong by historical standards, and prices in most of the country are at or near records. But even some of the biggest boosters of housing agree that the market has finally moved out of the boom phase that has raised prices nationwide an average of more than 50% in the past five years and more than doubled home values in many cities. "The air is coming out of the balloons," says David Lereah, chief economist at the National Association of Realtors, the nation's leading real- estate trade group.
The $2 trillion housing market has been the primary driver of consumer spending in recent years and accounts for about one-third of households' net worth. There hasn't been a sustained drop in housing prices in any major part of the U.S. in a decade or more, and housing has become a vital barometer for the financial, retail and homebuilding industries.)
"The [house-buying] frenzy is over," says Steve Murray, president of Real Trends, Littleton, Colo. Mr. Murray says it may take six to eight months before sellers accept that the market has softened and reduce their asking prices. He said some of the brokers surveyed were surprised at how rapidly the market seemed to be cooling in recent weeks. "We believe the market has peaked," says Doug Duncan, chief economist of the Mortgage Bankers Association. Because of brisk sales earlier this year, he expects sales of new and previously occupied homes to reach a record 8.3 million in 2005, up 4% from 2004. But he believes sales will decline 3.5% next year, ending a four-year streak of record- setting totals.
A cooling of the market is likely to be welcomed by the Federal Reserve, which has worried that home prices have become frothy and banks' mortgage underwriting standards have slipped. For the past few years, fast-rising home prices have allowed people to borrow more against their home equity, fueling a spending boom. Last month, Fed governor Donald Kohn, citing "some indications that housing markets are cooling off," said this would force consumers, who are not saving any of their current income, to save more to build wealth, restoring balance to the U.S. economy. A slowdown in home-price appreciation would probably restrain economic growth, and perhaps encourage the Fed to stop raising interest rates. However, absent a significant decline in prices, the Fed would be unlikely to cut rates to cushion housing. Ben Bernanke, chairman of President Bush's Council of Economic Advisers and nominee to succeed Fed Chairman Alan Greenspan in February, said last month that "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near" its long-term trend next year. Mr. Lereah of the National Association of Realtors still expects the housing market to have a soft landing. He predicts that median home prices will rise about 5% in 2006 after leaping 12% this year. In September, the national median stood at $212,000, according to the Realtors.
Others fear that the slowdown will be more painful, particularly in areas where prices have soared the most. In a report issued earlier this month, analysts at the New York office of Swiss bank UBS AG said the current upswing in home prices has now matched the unusual surge seen in the aftermath of World War II. Because price increases have been unusually swift and prolonged, the report said, "the odds of a soft landing seem smaller than if the cycle had peaked earlier."
In Westchester County, N.Y., just north of New York City, Greg Rand, managing partner of Prudential Rand Realty in White Plains, says he expects prices to fall by around 3% next year. David P. D'Ausilio, operating partner of Keller Williams CT Realty in Monroe, Conn., points to a 14% rise from a year earlier in the number of homes put on the market in Fairfield County, Conn., also near New York, in the first 10 months of 2005. "There's a newfound sense of urgency among sellers to get out while the getting is good," Mr. D'Ausilio says. He expects prices to fall 5% to 10% in his area over the next 12 months.
Maxine Golden of Re/Max Real Estate Services in Newport Beach, Calif., says that in contrast to this spring buyers are shying away from bidding wars. "They don't want to get involved if someone else is interested," she says. "They are taking a wait- and-see attitude even if it's something they want. They think there will be other things on the market."
The survey by Real Trends found that last month's decline in home-purchase contracts was particularly sharp in the West Coast region, down 14%. It found declines of 7% in the Northeast and 8% in the Mid- Atlantic states, while the Southeast was down just 1.5% and the Southwest showed a 1% increase. Though the survey is far from definitive, the trend is clear, Mr. Murray says, particularly because the brokers polled have large local market shares.
A more comprehensive look at the market is due Dec. 6, when the National Association of Realtors plans to release its monthly index of pending home sales. The NAR reported earlier this month that the index based on contracts signed in September was up 3.3% from a year earlier. Sales are considered pending when a contract has been signed but the transaction isn't yet complete.
"There is a definite change" in supply and demand, says Jacelyn Botti, a senior vice president at Weichert Realtors, a big chain based in Morris Plains, N.J. Along much of the East Coast, she says, inventories of homes available for sale have bloated to a supply sufficient to last five to eight months at current sales rates, compared with three or four months a year ago.
With sales slowing, condominium developers in San Diego are appealing to buyers with an array of incentives, says Robert Griswold, owner of Griswold Real Estate Management. "The market has definitely turned," says Mr. Griswold, noting that fliers offering condo buyers a car were being handed out at a recent Rolling Stones concert. "When you see that kind of advertising and promotion, they are clearly getting desperate."
While many sellers of single-family homes are stubborn in resisting price cuts, some are starting to compromise. Ken Baris, president of Jordan Baris Inc., a real-estate brokerage in West Orange, N.J., says he received an email on Friday from a client suggesting that the firm reduce the price on his five- bedroom home to $829,900 from $849,900. The house has been sitting on the market for 90 days. "It was an unsolicited price adjustment," says Mr. Baris. "I haven't seen that in a very long time."
Until recently, unusually low interest rates and flexible lending standards were helping Americans keep paying more for houses, despite slow growth in personal income. But that's changing. The average rate on a 30-year fixed-rate mortgage is about 6.5%, the highest level in more than two years, according to HSH Associates in Pompton Plains, N.J. That's up from about 5.2% in June 2003, which was the lowest in more than four decades.
The cost of adjustable-rate mortgages also has been rising, and some lenders have become more reluctant to grant loans that allow borrowers to minimize payments in the early years. The rising cost of credit makes it hard for people who already were stretched to buy homes. Mr. Duncan of the Mortgage Bankers expects mortgage rates to continue rising, reaching about 6.75% for a 30-year fixed-rate loan by the end of next year.
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As Demand Slows, Home Builders Sweeten Incentives for Buyers
By Kemba J. Dunham and Ruth Simon From The Wall Street Journal Online
As the housing market's red-hot sales pace shifts to a slow burn, some home builders and developers are beginning to offer buyers a richer array of incentives. Faced with rising inventories of unsold homes and reluctant buyers in many markets, a number of builders and developers are ratcheting up their promotional efforts. One developer is offering as much as $10,000 toward closing costs, while a home builder is throwing in golf-club memberships. Some incentives are available to any buyer, while others are tied to the buyer making use of a builder's preferred mortgage lender. Builders also are pitching higher commissions or special bonuses to real-estate agents.
Other deals are more creative: A Miami developer is offering to buy back its condo-hotel units at a premium after 18 months. Another builder, taking a cue from last summer's auto makers' deals, is offering "employee pricing" discounts in certain markets. The moves come as Toll Brothers Inc., a luxury-home builder based in Horsham, Pa., this week lowered its forecast for how many houses it expects to sell in 2006. It cited, among other things, softening demand in a number of its markets, including Chicago, Las Vegas, and Washington, D.C., and certain parts of Northern California, Maryland and Florida.
Builders often use various types of incentives to help sell homes, even during the strong market in recent years. This practice typically picks up late in the year as companies become eager to close sales and get properties off their books before the end of the year.
But some analysts say incentives have gotten more generous, as rising mortgage rates and elevated home prices have slowed sales. Traffic to new-home communities is down, waiting lists are disappearing, and inventories are inching up, analysts say. Ivy Zelman, a housing analyst at Credit Suisse First Boston, says builders' incentives typically work out to be 2% to 3% of the sales price. In some markets, incentives currently are running as high as 5%.
When Brian Widic, a 34-year-old systems engineer, bought his new home in Leesburg, Va., a year ago from Winchester Homes, Mr. Widic says he felt lucky to receive about 1% of the home's value, or about $10,000, toward the closing costs. Now Mr. Widic says he is being bombarded with mailings from various home builders offering a slew of incentives that range from a finished basement to Redskins season tickets. "I would certainly have a little bit more bargaining power today," he says.
A September survey of 488 single-family home builders by the National Association of Home Builders found that 58% were offering nonprice sales incentives, compared with 51% six months earlier. For home buyers, you might have to ask if a builder is offering any special deals, as not all builders publicize their offerings. When it comes time to dicker, buyers are likely to have more success if they ask for upgrades rather than for a price cut, says Rhonda Duffy, broker-owner of Duffy Realty in Atlanta.
Offers of reduced closing costs or other incentives tied to using the builder's preferred lender should be examined closely and compared with what may be available from other mortgage lenders.
In Las Vegas, the number of builders offering incentives is increasing as the market slows, says Larry Murphy, president of SalesTraq, which tracks the Las Vegas housing market. Among the recent offerings: granite countertops, a $30,000 swimming pool and a one-year pass to a local public golf course valued at roughly $3,000.
Waverton Homes, a builder in Portsmouth, Va., recently increased the amount it will pay toward closing costs to $4,000 from $2,500 if buyers in its Estates at Creekside Landing development use the builder's preferred lender and close before year-end. The builder is also offering agents a $1,500 bonus. "There's no question that it has slowed down," says Penny Boyd, the selling agent for the projects, where homes are priced from $433,000 to $530,000.
In Phoenix, Los Angeles builder KB Home is paying agents 3% commissions on the entire sales price on homes. KB also is offering home buyers an average of $1,500 off the closing costs on homes priced at an average of $283,000. The catch? Buyers have to finance their homes through Countrywide KB Home Loans, a joint venture between Countrywide Financial Corp. and KB Home.
In Miami Beach, The Mitchell Companies recently rolled out a special offer for buyers who purchase condo-hotel units in its Melia Royal Palm project before the sales office opens. The company is offering units at 10% below the list price and then promising to repurchase them for 12% above that price in 18 months. Buyers who want to keep the units must repay the 10% discount.
And Elad Group Florida, a unit of Elad Group Ltd., recently advertised "Sizzling Savings" of up to $10,000 toward closing costs to some buyers who purchase units in its new condominium development in Miramar, Fla.
Many builders are reluctant to admit that their current incentives are any different than their typical offerings at this time of year. Any appearance of a decline in home prices or profits can spook investors and send stock prices lower. Centex Corp., a big Dallas-based builder, announced last month that it was rolling out an "employee pricing" promotion, in which buyers at one Atlanta development will be offered a 5% discount and up to $20,000 in additional incentives on select homes if they financed through the company's mortgage unit. Normally offered to Centex employees, the discounts are being offered to the general public for a limited time. Centex offers similar programs in St. Louis, Port St. Lucie, Fla., and San Antonio. A Centex spokesman says the incentive program is a limited offer and is not a "big deal."
Pulte Homes Inc., based in Bloomfield Hills, Mich., recently offered a free gas fireplace, free hardwood floors on the main level, free upgraded cabinets and free washer/dryer at one of its Maryland developments. It also offered a choice of free heat for six months, a free 42-inch plasma television set or free window coverings in the amount of $5,000. "I know this is unbelievable, but it is true!" reads one emailed advertisement.
Sue Ko, a realtor in Arlington, Va., who received the email, says the Pulte offer "was one of the most incentive-heavy ones" she has ever seen. But Jim Zeumer`, Pulte's vice president of investor and corporate communications, says, "In terms of price, you're getting a plasma TV, but the rest of the 'free' listings are all standard in the house."
(ALSO THINGS IN SOUTHERN CA COOLING.)
. SOUTHLAND HOUSING MARKET COOLS OFF
Data show that the pace of sales declined and the rate of price increases slowed in October.
By Annette Haddad, LA Times Staff Writer
Southern California's housing market continued to lose steam last month as the pace of sales declined and the rate of price appreciation leveled off, data released Tuesday showed. Rising inventories, higher interest rates and growing buyer wariness are working to temper the region's hot real estate market, experts said.
There is a bit of a slowdown," said real estate agent Jon Strum, who sells homes on the Westside of Los Angeles for Boardwalk Realty. "There is more caution among buyers." The median price paid for a house in the six-county region was $473,000 last month, up 15.4% from a year earlier, according to DataQuick Information Systems, a La Jolla-based real estate research firm.
Yet the price was down slightly from September's median of $475,000 and August's $476,000, which was the record for Southern California. "Prices may be zeroing in on an overall plateau," said John Karevoll, DataQuick's chief analyst. The number of homes that changed hands in October declined 10% to 28,489 from the month before and was flat compared with a year ago, DataQuick said.
The trend is expected to continue, at least in the near term. The number of home-purchase contracts signed last month declined 14% compared with a year before, according to a survey of large West Coast real estate brokerages. Contracts signed represent pending sales that are expected to close over the next 30 to 60 days.
"I believe consumers have reached a point where they are stuffed with housing," said Steve Murray, president of Real Trends, a Littleton, Colo.-based consulting firm that surveyed 80 brokerages. "And in the West that's because of prices."
Nationwide, Murray found that the number of signed contracts dropped 8% last month, suggesting that the real estate boom — which many have characterized as a bubble — may be cooling in other parts of the country as well. "We're moving back to a normal marketplace," Murray said.
That said, three Southern California counties posted price records last month, including San Diego, where the median price rose 4.9% to $513,000, clearing the half-million-dollar mark for the first time. Riverside and San Bernardino counties also reached new highs — $391,000 and $354,000, respectively — with San Bernardino leading the region in year-over- year price growth at 33.1%. Riverside's median rose 15.3%.
The median home price rose 20.3% to $492,000 in Los Angeles County and gained 15.1% to $596,000 in Ventura County. As usual, Orange County had the highest median at $606,000, up 13.9% from a year ago. The median price is the point at which half of all homes sell for more, half for less.
Despite its new price benchmark, however, San Diego also posted a sales drop of 12.7% in October on a year-over-year basis — the county's 16th consecutive month of declines.
San Diego is viewed by many as a bellwether for the Southland's housing market because it was the first county to see price appreciation zoom into double digits and the first to face a slowdown. Its rate of home-price growth has already hit a plateau, Karevoll said, hovering in the mid-single digits since May. "Basically, the rest of the region is following in San Diego's footsteps," Karevoll said. Other counties' price "increases are becoming incrementally smaller, which is what happened in San Diego."
San Diego also has seen the supply of homes for sale grow fivefold over the last year, which is helping to slow price increases. Realtors report more than 15,000 listings on the market, compared with about 3,000 in mid-2004. Strum, the Westside real estate agent, said inventories in his region were swelling as well. For instance, in the community of Westchester there are about 60 homes on the market, compared with 30 a month ago. With more properties for sale, he said, prospective buyers have more room to negotiate. "It's not quite a buyer's market," Strum said, "but the pendulum is moving in that direction."
Strum attributes some of the change to the recent rise in interest rates. With the average rate on a 30- year fixed-rate mortgage passing 6% in recent weeks, buyers are growing more wary about settling for a seller's asking price. "The rising rates tend to have a chilling effect," Strum said. The housing market typically slows in the fall, and Karevoll noted that sales were still well above the average for this time of year. He said October's sales volume was 20% above the average for all Octobers going back 18 years.
Such statistics continue to give experts pause. Many, including Karevoll, were predicting six months ago that the rate of home-price appreciation would be closer to 10% on a year-over-year basis by now, instead of the 15.4% posted last month. Karevoll is forecasting that Southland home prices could set a new record in December, before moderating next year. "We're coming in for a landing," he said. "We just haven't landed yet."
* Home prices
Median price in October of new and resold homes overall and by county
Median --- change price from Area year ago
San Bernardino $354 33.1%
Los Angeles $492 20.3%
Riverside $391 15.3%
Ventura $596 15.1%
Orange County $606 13.9%
San Diego $513 4.9%
S. California $473 15.4%
Source: DataQuick Information Systems
Housing Market Shows Further Signs of Cooling
By JAMES R. HAGERTY and RUTH SIMON
Staff Reporters of THE WALL STREET JOURNAL November 15, 2005;
The pace of U.S. home sales is showing further signs of slowing, amid a widening gap between sellers' asking prices and the amount skittish buyers are prepared to offer, according to an industry survey, real-estate brokerage firms and housing economists.
Rising mortgage rates, higher energy costs, widespread talk about the risk of a "bubble" in housing and a surge in the number of homes on the market are among the factors behind the apparent slowdown. They have combined to make home shoppers more cautious, economists and real-estate brokers say. Buyers are taking their time to look for bargains, while many sellers have put unrealistically high price tags on their homes. That leads to a standoff, causing the number of sales to drop -- a classic ending to a period of unusually rapid house- price increases.
In a survey conducted last week, real-estate consulting firm Real Trends found that the number of home-purchase contracts signed last month dropped 8% from a year earlier at 48 of the nation's large real- estate brokerage firms. Those brokers responded to an email poll sent to 80 brokerage firms. To be sure, home sales remain strong by historical standards, and prices in most of the country are at or near records. But even some of the biggest boosters of housing agree that the market has finally moved out of the boom phase that has raised prices nationwide an average of more than 50% in the past five years and more than doubled home values in many cities. "The air is coming out of the balloons," says David Lereah, chief economist at the National Association of Realtors, the nation's leading real- estate trade group.
The $2 trillion housing market has been the primary driver of consumer spending in recent years and accounts for about one-third of households' net worth. There hasn't been a sustained drop in housing prices in any major part of the U.S. in a decade or more, and housing has become a vital barometer for the financial, retail and homebuilding industries.)
"The [house-buying] frenzy is over," says Steve Murray, president of Real Trends, Littleton, Colo. Mr. Murray says it may take six to eight months before sellers accept that the market has softened and reduce their asking prices. He said some of the brokers surveyed were surprised at how rapidly the market seemed to be cooling in recent weeks. "We believe the market has peaked," says Doug Duncan, chief economist of the Mortgage Bankers Association. Because of brisk sales earlier this year, he expects sales of new and previously occupied homes to reach a record 8.3 million in 2005, up 4% from 2004. But he believes sales will decline 3.5% next year, ending a four-year streak of record- setting totals.
A cooling of the market is likely to be welcomed by the Federal Reserve, which has worried that home prices have become frothy and banks' mortgage underwriting standards have slipped. For the past few years, fast-rising home prices have allowed people to borrow more against their home equity, fueling a spending boom. Last month, Fed governor Donald Kohn, citing "some indications that housing markets are cooling off," said this would force consumers, who are not saving any of their current income, to save more to build wealth, restoring balance to the U.S. economy. A slowdown in home-price appreciation would probably restrain economic growth, and perhaps encourage the Fed to stop raising interest rates. However, absent a significant decline in prices, the Fed would be unlikely to cut rates to cushion housing. Ben Bernanke, chairman of President Bush's Council of Economic Advisers and nominee to succeed Fed Chairman Alan Greenspan in February, said last month that "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near" its long-term trend next year. Mr. Lereah of the National Association of Realtors still expects the housing market to have a soft landing. He predicts that median home prices will rise about 5% in 2006 after leaping 12% this year. In September, the national median stood at $212,000, according to the Realtors.
Others fear that the slowdown will be more painful, particularly in areas where prices have soared the most. In a report issued earlier this month, analysts at the New York office of Swiss bank UBS AG said the current upswing in home prices has now matched the unusual surge seen in the aftermath of World War II. Because price increases have been unusually swift and prolonged, the report said, "the odds of a soft landing seem smaller than if the cycle had peaked earlier."
In Westchester County, N.Y., just north of New York City, Greg Rand, managing partner of Prudential Rand Realty in White Plains, says he expects prices to fall by around 3% next year. David P. D'Ausilio, operating partner of Keller Williams CT Realty in Monroe, Conn., points to a 14% rise from a year earlier in the number of homes put on the market in Fairfield County, Conn., also near New York, in the first 10 months of 2005. "There's a newfound sense of urgency among sellers to get out while the getting is good," Mr. D'Ausilio says. He expects prices to fall 5% to 10% in his area over the next 12 months.
Maxine Golden of Re/Max Real Estate Services in Newport Beach, Calif., says that in contrast to this spring buyers are shying away from bidding wars. "They don't want to get involved if someone else is interested," she says. "They are taking a wait- and-see attitude even if it's something they want. They think there will be other things on the market."
The survey by Real Trends found that last month's decline in home-purchase contracts was particularly sharp in the West Coast region, down 14%. It found declines of 7% in the Northeast and 8% in the Mid- Atlantic states, while the Southeast was down just 1.5% and the Southwest showed a 1% increase. Though the survey is far from definitive, the trend is clear, Mr. Murray says, particularly because the brokers polled have large local market shares.
A more comprehensive look at the market is due Dec. 6, when the National Association of Realtors plans to release its monthly index of pending home sales. The NAR reported earlier this month that the index based on contracts signed in September was up 3.3% from a year earlier. Sales are considered pending when a contract has been signed but the transaction isn't yet complete.
"There is a definite change" in supply and demand, says Jacelyn Botti, a senior vice president at Weichert Realtors, a big chain based in Morris Plains, N.J. Along much of the East Coast, she says, inventories of homes available for sale have bloated to a supply sufficient to last five to eight months at current sales rates, compared with three or four months a year ago.
With sales slowing, condominium developers in San Diego are appealing to buyers with an array of incentives, says Robert Griswold, owner of Griswold Real Estate Management. "The market has definitely turned," says Mr. Griswold, noting that fliers offering condo buyers a car were being handed out at a recent Rolling Stones concert. "When you see that kind of advertising and promotion, they are clearly getting desperate."
While many sellers of single-family homes are stubborn in resisting price cuts, some are starting to compromise. Ken Baris, president of Jordan Baris Inc., a real-estate brokerage in West Orange, N.J., says he received an email on Friday from a client suggesting that the firm reduce the price on his five- bedroom home to $829,900 from $849,900. The house has been sitting on the market for 90 days. "It was an unsolicited price adjustment," says Mr. Baris. "I haven't seen that in a very long time."
Until recently, unusually low interest rates and flexible lending standards were helping Americans keep paying more for houses, despite slow growth in personal income. But that's changing. The average rate on a 30-year fixed-rate mortgage is about 6.5%, the highest level in more than two years, according to HSH Associates in Pompton Plains, N.J. That's up from about 5.2% in June 2003, which was the lowest in more than four decades.
The cost of adjustable-rate mortgages also has been rising, and some lenders have become more reluctant to grant loans that allow borrowers to minimize payments in the early years. The rising cost of credit makes it hard for people who already were stretched to buy homes. Mr. Duncan of the Mortgage Bankers expects mortgage rates to continue rising, reaching about 6.75% for a 30-year fixed-rate loan by the end of next year.
----------------------------------------------------
As Demand Slows, Home Builders Sweeten Incentives for Buyers
By Kemba J. Dunham and Ruth Simon From The Wall Street Journal Online
As the housing market's red-hot sales pace shifts to a slow burn, some home builders and developers are beginning to offer buyers a richer array of incentives. Faced with rising inventories of unsold homes and reluctant buyers in many markets, a number of builders and developers are ratcheting up their promotional efforts. One developer is offering as much as $10,000 toward closing costs, while a home builder is throwing in golf-club memberships. Some incentives are available to any buyer, while others are tied to the buyer making use of a builder's preferred mortgage lender. Builders also are pitching higher commissions or special bonuses to real-estate agents.
Other deals are more creative: A Miami developer is offering to buy back its condo-hotel units at a premium after 18 months. Another builder, taking a cue from last summer's auto makers' deals, is offering "employee pricing" discounts in certain markets. The moves come as Toll Brothers Inc., a luxury-home builder based in Horsham, Pa., this week lowered its forecast for how many houses it expects to sell in 2006. It cited, among other things, softening demand in a number of its markets, including Chicago, Las Vegas, and Washington, D.C., and certain parts of Northern California, Maryland and Florida.
Builders often use various types of incentives to help sell homes, even during the strong market in recent years. This practice typically picks up late in the year as companies become eager to close sales and get properties off their books before the end of the year.
But some analysts say incentives have gotten more generous, as rising mortgage rates and elevated home prices have slowed sales. Traffic to new-home communities is down, waiting lists are disappearing, and inventories are inching up, analysts say. Ivy Zelman, a housing analyst at Credit Suisse First Boston, says builders' incentives typically work out to be 2% to 3% of the sales price. In some markets, incentives currently are running as high as 5%.
When Brian Widic, a 34-year-old systems engineer, bought his new home in Leesburg, Va., a year ago from Winchester Homes, Mr. Widic says he felt lucky to receive about 1% of the home's value, or about $10,000, toward the closing costs. Now Mr. Widic says he is being bombarded with mailings from various home builders offering a slew of incentives that range from a finished basement to Redskins season tickets. "I would certainly have a little bit more bargaining power today," he says.
A September survey of 488 single-family home builders by the National Association of Home Builders found that 58% were offering nonprice sales incentives, compared with 51% six months earlier. For home buyers, you might have to ask if a builder is offering any special deals, as not all builders publicize their offerings. When it comes time to dicker, buyers are likely to have more success if they ask for upgrades rather than for a price cut, says Rhonda Duffy, broker-owner of Duffy Realty in Atlanta.
Offers of reduced closing costs or other incentives tied to using the builder's preferred lender should be examined closely and compared with what may be available from other mortgage lenders.
In Las Vegas, the number of builders offering incentives is increasing as the market slows, says Larry Murphy, president of SalesTraq, which tracks the Las Vegas housing market. Among the recent offerings: granite countertops, a $30,000 swimming pool and a one-year pass to a local public golf course valued at roughly $3,000.
Waverton Homes, a builder in Portsmouth, Va., recently increased the amount it will pay toward closing costs to $4,000 from $2,500 if buyers in its Estates at Creekside Landing development use the builder's preferred lender and close before year-end. The builder is also offering agents a $1,500 bonus. "There's no question that it has slowed down," says Penny Boyd, the selling agent for the projects, where homes are priced from $433,000 to $530,000.
In Phoenix, Los Angeles builder KB Home is paying agents 3% commissions on the entire sales price on homes. KB also is offering home buyers an average of $1,500 off the closing costs on homes priced at an average of $283,000. The catch? Buyers have to finance their homes through Countrywide KB Home Loans, a joint venture between Countrywide Financial Corp. and KB Home.
In Miami Beach, The Mitchell Companies recently rolled out a special offer for buyers who purchase condo-hotel units in its Melia Royal Palm project before the sales office opens. The company is offering units at 10% below the list price and then promising to repurchase them for 12% above that price in 18 months. Buyers who want to keep the units must repay the 10% discount.
And Elad Group Florida, a unit of Elad Group Ltd., recently advertised "Sizzling Savings" of up to $10,000 toward closing costs to some buyers who purchase units in its new condominium development in Miramar, Fla.
Many builders are reluctant to admit that their current incentives are any different than their typical offerings at this time of year. Any appearance of a decline in home prices or profits can spook investors and send stock prices lower. Centex Corp., a big Dallas-based builder, announced last month that it was rolling out an "employee pricing" promotion, in which buyers at one Atlanta development will be offered a 5% discount and up to $20,000 in additional incentives on select homes if they financed through the company's mortgage unit. Normally offered to Centex employees, the discounts are being offered to the general public for a limited time. Centex offers similar programs in St. Louis, Port St. Lucie, Fla., and San Antonio. A Centex spokesman says the incentive program is a limited offer and is not a "big deal."
Pulte Homes Inc., based in Bloomfield Hills, Mich., recently offered a free gas fireplace, free hardwood floors on the main level, free upgraded cabinets and free washer/dryer at one of its Maryland developments. It also offered a choice of free heat for six months, a free 42-inch plasma television set or free window coverings in the amount of $5,000. "I know this is unbelievable, but it is true!" reads one emailed advertisement.
Sue Ko, a realtor in Arlington, Va., who received the email, says the Pulte offer "was one of the most incentive-heavy ones" she has ever seen. But Jim Zeumer`, Pulte's vice president of investor and corporate communications, says, "In terms of price, you're getting a plasma TV, but the rest of the 'free' listings are all standard in the house."
(ALSO THINGS IN SOUTHERN CA COOLING.)
. SOUTHLAND HOUSING MARKET COOLS OFF
Data show that the pace of sales declined and the rate of price increases slowed in October.
By Annette Haddad, LA Times Staff Writer
Southern California's housing market continued to lose steam last month as the pace of sales declined and the rate of price appreciation leveled off, data released Tuesday showed. Rising inventories, higher interest rates and growing buyer wariness are working to temper the region's hot real estate market, experts said.
There is a bit of a slowdown," said real estate agent Jon Strum, who sells homes on the Westside of Los Angeles for Boardwalk Realty. "There is more caution among buyers." The median price paid for a house in the six-county region was $473,000 last month, up 15.4% from a year earlier, according to DataQuick Information Systems, a La Jolla-based real estate research firm.
Yet the price was down slightly from September's median of $475,000 and August's $476,000, which was the record for Southern California. "Prices may be zeroing in on an overall plateau," said John Karevoll, DataQuick's chief analyst. The number of homes that changed hands in October declined 10% to 28,489 from the month before and was flat compared with a year ago, DataQuick said.
The trend is expected to continue, at least in the near term. The number of home-purchase contracts signed last month declined 14% compared with a year before, according to a survey of large West Coast real estate brokerages. Contracts signed represent pending sales that are expected to close over the next 30 to 60 days.
"I believe consumers have reached a point where they are stuffed with housing," said Steve Murray, president of Real Trends, a Littleton, Colo.-based consulting firm that surveyed 80 brokerages. "And in the West that's because of prices."
Nationwide, Murray found that the number of signed contracts dropped 8% last month, suggesting that the real estate boom — which many have characterized as a bubble — may be cooling in other parts of the country as well. "We're moving back to a normal marketplace," Murray said.
That said, three Southern California counties posted price records last month, including San Diego, where the median price rose 4.9% to $513,000, clearing the half-million-dollar mark for the first time. Riverside and San Bernardino counties also reached new highs — $391,000 and $354,000, respectively — with San Bernardino leading the region in year-over- year price growth at 33.1%. Riverside's median rose 15.3%.
The median home price rose 20.3% to $492,000 in Los Angeles County and gained 15.1% to $596,000 in Ventura County. As usual, Orange County had the highest median at $606,000, up 13.9% from a year ago. The median price is the point at which half of all homes sell for more, half for less.
Despite its new price benchmark, however, San Diego also posted a sales drop of 12.7% in October on a year-over-year basis — the county's 16th consecutive month of declines.
San Diego is viewed by many as a bellwether for the Southland's housing market because it was the first county to see price appreciation zoom into double digits and the first to face a slowdown. Its rate of home-price growth has already hit a plateau, Karevoll said, hovering in the mid-single digits since May. "Basically, the rest of the region is following in San Diego's footsteps," Karevoll said. Other counties' price "increases are becoming incrementally smaller, which is what happened in San Diego."
San Diego also has seen the supply of homes for sale grow fivefold over the last year, which is helping to slow price increases. Realtors report more than 15,000 listings on the market, compared with about 3,000 in mid-2004. Strum, the Westside real estate agent, said inventories in his region were swelling as well. For instance, in the community of Westchester there are about 60 homes on the market, compared with 30 a month ago. With more properties for sale, he said, prospective buyers have more room to negotiate. "It's not quite a buyer's market," Strum said, "but the pendulum is moving in that direction."
Strum attributes some of the change to the recent rise in interest rates. With the average rate on a 30- year fixed-rate mortgage passing 6% in recent weeks, buyers are growing more wary about settling for a seller's asking price. "The rising rates tend to have a chilling effect," Strum said. The housing market typically slows in the fall, and Karevoll noted that sales were still well above the average for this time of year. He said October's sales volume was 20% above the average for all Octobers going back 18 years.
Such statistics continue to give experts pause. Many, including Karevoll, were predicting six months ago that the rate of home-price appreciation would be closer to 10% on a year-over-year basis by now, instead of the 15.4% posted last month. Karevoll is forecasting that Southland home prices could set a new record in December, before moderating next year. "We're coming in for a landing," he said. "We just haven't landed yet."
* Home prices
Median price in October of new and resold homes overall and by county
Median --- change price from Area year ago
San Bernardino $354 33.1%
Los Angeles $492 20.3%
Riverside $391 15.3%
Ventura $596 15.1%
Orange County $606 13.9%
San Diego $513 4.9%
S. California $473 15.4%
Source: DataQuick Information Systems
posted by S. Dreznin at
4:12 PM
1 Comments:
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