New-Home Sales Rise in Region

In what’s increasingly becoming a tale of widely divergent regional real estate markets, Southern California’s new-home sector is holding up much better than other parts of the nation and even the rest of the state.

The latest evidence came Friday when the Commerce Department reported that the number of new single-family homes sold nationwide fell 10.5% last month from the month before, to an annual rate of 1.08 million units, marking the biggest drop in new-home sales in nearly nine years.

The drop pushed a gauge of the volume of unsold new homes to its highest level in more than a decade. In February, 548,000 new homes went unsold, representing a 6.3-month supply -- meaning it would take that long to sell them at current sales rates. In January, there was a 5.3-month supply.

In the West, which includes California, the sales plunge was even worse: down 29.4%, partly reflecting stalling sales in Sacramento and the Central Valley and in other Western states such as Arizona.

Yet in Southern California, sales of new single-family houses and condominiums saw their strongest February since 1988, according to statistics compiled by real estate research firm DataQuick Information Systems. Last month, sales rose 9.5% to 4,980 from January’s 4,550, and were up 19% from the year before.

By comparison, new-home sales in the Sacramento area have been much weaker, DataQuick said. Although sales there were up 13% in February from the previous month, that was after January marked the worst month in six years. As many new homes were sold in December as in January and February combined, according to DataQuick. And sales plunged 45% in February from the year before.

What’s more, the inventory of unsold new homes in Southern California, although rising, is below levels elsewhere in the West and in the nation.

In February, there was a 2.1-month supply of unsold new homes from Ventura County to the Mexican border, said Steve Johnson, director of the Southern California region for real estate consulting firm MetroStudy. Around Phoenix, there’s three times the inventory available.

The reason for the difference: There has been less home building in much of Southern California, thanks largely to tight governmental regulations and a lack of available land.

“We just don’t have much excess supply,” Johnson said.

The Southland housing market also is holding up better because its economy is more diverse and job creation remains strong, thanks in part to growth in such sectors as tourism, trade and aerospace. The region also is proving to be less volatile because the presence of real estate speculators has been less than in other hot markets.

However, the Southland’s February inventory of unsold homes was up 80% from a year earlier, Johnson said, suggesting that demand here was cooling nonetheless.

“Builders used to be able to take the ‘Field of Dreams’ approach -- built it and they will come,” Johnson said. “Now they have to do their homework and evaluate the market more carefully.”

One thing builders are finding is that rising home prices, coupled with rising mortgage rates, are tempering the ardor of prospective buyers, experts said.

Many Southland builders are working to adjust their strategies to accommodate the more-reticent attitude of buyers.

They are building smaller homes, such as condominiums and town homes, or converting existing apartment units into for-sale housing, which are usually priced lower than single-family houses.

Builders also have scaled back the number of homes released for sale at their new-home communities. “Builders will shift their mix of products to accommodate the market,” said John Karevoll, chief analyst for DataQuick.

That has helped local builders avoid having to offer discounts or other concessions to stoke buyer demand. At certain new-home communities in Sacramento, for instance, builders slashed prices to close sales.

“The Sacramento market went up very quickly, perhaps too quickly,” said Patrick Duffy, a market analyst for Hanley Wood Market Intelligence.

Builders in Southern California, he said, generally are reluctant to offer price cuts or free upgrades.

“It’s like car dealers,” Duffy said. “Once you start offering incentives, then everybody starts expecting them.”