Nov122015

OC new home sales crater due to high prices

New home prices are too high in Orange County. There are not enough buyers with the ability and the desire to buy to absorb the inventory.

premium on premiumIs Orange County, California, in the grips of a new housing bubble?

No, but the prices are too damn high.

This isn’t rocket science, and I don’t need to launch into a long diatribe on affordability. Local homebuilders pushed prices up so high that they don’t have enough buyers with the means and motivation to absorb the new home inventory.

Right now, very little of the available new-home inventory is financeable by buyers using GSE of FHA financing. It’s almost entirely a jumbo market requiring sky-high incomes, $200K+ in savings, and stellar credit. Coming out of a deep recession, how many people are in that position?

Apparently, not enough to buy the new homes built in Orange County.

Where have all the new-home buyers gone? After 2 years of rising sales, transactions make an about-face

Jeff Collins, Nov. 8, 2015

According to figures from data firm CoreLogic, new home sales have declined year-over-year in Orange County for 10 straight months, with volume down 21 percent.

new homes sold west 2015

By comparison, existing home sales increased 10 percent in that period. …

Among Southern California counties, only Orange and San Diego counties had new-home sales declines. And Orange County was alone with an unbroken downward streak running from November 2014 through September. …

New homes must compete with existing homes in the market. New home prices escalated far more than existing home prices, so buyers began substituting to existing homes rather than pay the prices builders wanted. It’s a simple as that.

So what is plaguing the new home market here?

It’s not a lack of inventory.

new homes for sale west 2015

It could be that Orange County builders are victims of their own success, experts said.

Some new housing projects sold out more quickly than expected in 2014, leaving builders with fewer homes to sell this year.

Based on the chart above, that idea is complete nonsense.house-price-ratings

But that’s not the only reason.

New home prices also may have gotten too high, even for Orange County, the region’s priciest housing market.

You think?

And purchases by Chinese buyers, who made up a significant portion of new home buyers in recent years, are starting to wane following currency and stock market volatility in their country.

Is successful real estate investment like judging a beauty contest? Irvine is no longer beautiful.

“I’m seeing slower sales at the higher price point pretty much everywhere,” said John Burns, an Irvine-based housing consultant. “And the Orange County new home market is heavily skewed to million-dollar homes.” …

Sky-high home prices also may be deterring some buyers.

The median price of a newly built Orange County home – or the price at the midpoint of all sales – hit an all-time high of $909,000 in February, CoreLogic figures show. The median for the year as a whole thus far is $835,000.

Homebuilders got ahead of themselves on pricing, and now they have to figure out how to adjust. It won’t be easy.

real_estate_gold

Some developers maintain that high prices aren’t scaring buyers at their developments.

The Irvine Co. cited a report showing its sales up 56 percent by midyear.

“New homebuyers consistently tell us that the Villages of Irvine homes are attractive,” spokesman Bill Lobdell said.

Kelly, the Rancho Mission Viejo exec, said his firm’s new Esencia project is “experiencing strong sales at all price points.”

Experts are skeptical, however.

If that were true, why do the official property records show declining sales? (Hint: They’re lying.)reluctance

The price gap between resale and new homes this year is $250,000, according to CoreLogic. …

“The gap between the resale market values and the new home market has widened considerably,” Valone said. “A lot of people are going, ‘Nah … I’m not going to buy a new home.’”

Why should they when lower priced existing homes are available.

Said Burns, the housing consultant, “Orange County’s new homes almost exclusively cater to the affluent buyers.”

Olson’s townhomes in Buena Park sell in the $500,000s and under, while the Huntington Beach townhomes sell in the $700,000s and below, he said. There’s not a lot of competition from other builders at those prices.

“We’re not really seeing a slowdown in Orange County,” he said.

Clear proof of the “price is too high” theory.PREFAB-ABANDONED

There are signs new-home sales might be turning around.For one thing, homebuilding has gotten back in high gear, with nearly 1,900 new homes now in the works at the Great Park and Rancho Mission Viejo and at least two new projects launched by the Irvine Co.

Sea Summit at Marblehead, with 309 ocean-bluff houses in San Clemente, is holding its grand opening this weekend.

Yes, that will cause a turnaround. A flood of new home supply in a declining sales environment will cause prices to turn around and head south.

Expect to see a flood of incentives followed by lower new home prices over the next 12 to 18 months.

Are new home prices insulting?

Isn’t it possible for an asking price to be so high, so ridiculous that it insults the intelligence of every buyer in the marketplace? I think so.

Is it possible to shame sellers into setting reasonable asking prices? When an asking price is beyond ridiculous, there should be a sense of shame for the insult to potential buyers everywhere. There is a lack of respect in a WTF price, and maybe the fear of insult will make a seller pause before listing an embarrassing asking price.


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