California New-Home Market Is Off to a Slow Start in 2008, CBIA Announces

Homebuilders call for economic stimulus legislation to assist industry in light of worsening conditions

March 17, 2008. SACRAMENTO – The pace of home sales at California new-home communities began 2008 with a sluggish pace, the California Building Industry Association reported today, prompting CBIA to reiterate its call for the state Legislature to quickly take action to assist homebuilding, one of the state’s leading industries.

The monthly CBIA/Hanley Wood Market Intelligence (HWMI) New Home Sales and Pricing Report showed that new home sales in January were over 62 percent below January 2007. While a staggering percentage decline, the drop is slightly less severe than the year-over-year decline of nearly 67 percent in December.

During January, 2,679 homes and condominiums were sold in the subdivisions tracked by Costa Mesa-based HWMI, compared to 7,109 in January 2007. Sales of single-family homes dropped by 61 percent, while sales of townhomes and “plexes” – duplexes, triplexes, etc. – were down 71 percent and sales of condominiums were down 58 percent.

Compared with the same period last year, the median base price of homes sold dropped by 13 percent.

Non-seasonally adjusted total new-home sales were 29 percent higher than levels seen in December, although it is not unusual for January to show a much faster pace of sales activity than December. Median base sales prices statewide were 0.2 percent lower than in December.

Jonathan Dienhart, Director of Published Research for HWMI, notes the housing market had a rough winter.

“The winter of 2007-2008 could wind up being the darkest hour for this housing market,” Dienhart said. “While it is still too early to declare the bottom has been reached, if sales can start to stabilize in the coming months thanks to higher conforming loan limits and low mortgage rates, it may become evident the worst is finally over.”

But Dienhart also cautioned about broader economic issues on the horizon.

“With a weakening economy dragging down the nation this year, it will be especially difficult for the housing market to stage any kind of recovery. The best we can hope for are some signs of stabilization instead of more declines,” he said.

Robert Rivinius, CBIA’s President and CEO, said the Legislature should quickly pass three bills designed to help homebuilders survive the sharp downturn in the housing market.

“First, we would ask lawmakers to pass SB 1185, which would give builders an additional two years to build on home sites approved by local officials,” Rivinius said. “Normally, these subdivision maps require homes to be completed within two or three years, which in many cases will not occur given the housing downturn.

“SB 1185 is urgently needed and has been put on a fast track in the Legislature, designed to get it enacted and in place as soon as possible. Failure to act means thousands of entitlements will expire, forcing builders to unnecessarily go through a time-consuming and expensive process to get new entitlements approved and delaying a long-awaited industry recovery. Similar legislation was passed in the mid-1990s and helped produce a seamless and uninterrupted recovery.”

He said lawmakers should also approve AB 2604, which would allow builders to pay local impact fees when a home is sold instead of when the building permit is obtained. Since these fees often total $50,000 or more per house – $100,000 per home in a growing number of communities – the bill would significantly help builders avoid a cash squeeze.

The third measure is AJR 45, a joint resolution that calls on Congress and the President to permanently increase the federal conforming loan limits and allow mortgages of up to $729,000 to be purchased by Freddie Mac and Fannie Mae, the federally backed lending giants created to ensure a reliable source of credit for homebuyers.

Finally, Rivinius said that this year more than ever, lawmakers should do no harm.

“Every year, lawmakers and regulators propose new requirements that drive up the cost of housing, helping to make California housing the most expensive and unaffordable in the nation. This year these burdens must also be measured in terms of their impact on a struggling homebuilding industry and their consequences on the health of the state’s economy. We strongly encourage lawmakers and policy-makers to take no actions that further burden housing and the homebuilding industry. Indeed, with the housing downturn a major factor in the state’s current budget crisis, lawmakers should be working to help housing rebound quickly and restore the state’s economic health.”

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The California Building Industry Association is a statewide trade association representing more than 7,000 businesses – homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. A recent study determined that homebuilding generates approximately $68 billion a year to the California economy and creates an estimated 487,000 jobs statewide. More information is available on the Association’s Web site, www.cbia.org.

Hanley Wood Market Intelligence (HWMI) collects data from new for-sale production subdivisions of 10 units or more on a monthly basis. HWMI Net Sales represent sales contracts signed during the period indicated minus any reported cancellations. Median and Average Prices are based upon the minimum asking price of the plans sold during the period and do not include the cost of any lot/view premiums or upgrades. Because this data is collected monthly and based upon sales contracts that represent future closings, HWMI data is the most forward-looking data source available for new home information in the state of California.