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Credit Crisis Paralyzes New-Home Market in California
The pace of home sales at California’s new-home communities was extraordinarily bad in October, primarily due to the global credit crisis, the California Building Industry Association reported on Dec. 15. CBIA officials said the extremely low sales rate should prompt quick action by policy makers for actions to help jump-start the critically important home building industry.
“The huge fall-off in home sales in October is yet more proof that the industry is in dire straits and that state and federal stimulus packages are needed to help turn around home building, and with it the larger economy,” said Robert Rivinius, CBIA’s president and CEO. “Housing traditionally is the engine that leads the economy out of recession, but with home building in a depression, there’s little chance the overall recession will begin to improve without tax credits and other incentives to push people off the fence and back into the marketplace.”
The monthly CBIA/Hanley Wood Market Intelligence (HWMI) New Home Sales and Pricing Report showed that new home sales in October were 63% below the level of one year earlier, representing some of the worst monthly statistics yet seen over the course of the housing downturn.
During October, 1,462 homes and condominiums were sold in the subdivisions tracked by Costa Mesa-based HWMI, compared to 3,949 in October 2007. Sales of single-family homes were down by 62%, while sales of townhomes and “plexes” — duplexes, triplexes, etc. — were down 64% and sales of condominiums were off by 65%.
Compared with the same period last year, the median base price of homes sold dropped by 9%.
Non-seasonally adjusted total new home sales were 2% lower than in September. While it is not unusual for new-home sales to show a slower pace of sales activity in October than in September due to normal seasonality trends, the drop this year was unusually large compared to the 9% drop for the same period a year ago.
Median base prices of units sold statewide were 3.5% lower than in September, although with sales volumes fluctuating so widely, the trend line representing the median price of homes sold can vary substantially from month to month.
Jonathan Dienhart, Director of Published Research for HWMI, said that the health of the economy and the labor market will be key to any recovery in the housing market.
“Stable credit markets and banks are beneficial, but can only do so much when it comes to the housing market. Buyers still need to have good credit, a stable source of income, and in most cases a downpayment in order to qualify for a mortgage,” Dienhart said. “Additionally, existing home owners have little hope of selling their current house quickly if they need to do so in order to purchase a new one, which will create a stranglehold on new home sales until economic conditions improve.”
Rivinius pointed out that housing production this year is by far the lowest since the end of World War II, and that 2009 is shaping up to be equally bad, or even worse. He said a broad coalition of more than 600 member companies and organizations nationwide called Fix Housing First has proposed that Congress and the incoming Obama Administration enact a temporary 10% tax credit on the purchase of all primary residences between April 9, 2008, and Dec. 31, 2009.
The credit would be available at the time of closing, making it easier to be used as a downpayment, and unlike the $7,500 credit passed earlier this year, it would not have to be repaid. The amount available for each purchase would be on a sliding scale from $10,000 to $22,000. The proposal also would provide qualified home buyers with 30-year fixed-rate mortgages at 2.99% on contracts closed until June 30, 2009, and 3.99% on closings between June 30 and Dec. 31, 2009.
Separately, CBIA is proposing that the California Legislature enact a 5% tax credit for purchasers of new single-family homes between Oct. 1, 2008, and Oct. 1, 2009. Berkeley Economic Consulting, a consulting firm, estimates that the proposal would lead to a net state revenue gain of $1.07 billion.
“Because of the sharp drop-off in home building, California has lost nearly 300,000 jobs and $46 billion in economic impact in just the last three years. It’s clear that action is needed, and needed now, to help reignite home building and get the state moving forward again,” Rivinius said.
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