Tuesday, June 13, 2006

Excess of new homes in region

In 1996, the 8,000 new housing starts in Sacramento, Placer and El Dorado County, amounted to a record number of newly built homes for the region. New construction continued to grow and hit a peak in 2004 of nearly 20,000 newly built homes. In 2005 the number dropped to 15,000 and this year it is expect to drop to 12,000. That’s probably a good thing in a market where we have more supply than demand.

New home builders are not only competing with a leftover standing inventory but a glut of existing resale homes is contributing to their problem. In May there were 11,500 existing homes for sale in the region. Jim Eggleston, president of The Sign Post, that installs 90 percent of the region’s For Sale signs said, “We put up 900 more signs than we took down in May.” That’s not a good sign.

If that seams like a lot of existing homes for sale at the same time, it is but there have been more. In 1992 there were 13,500 existing homes for sale. So what’s a major difference? In 1992 there were less than 2,000 new single-family homes for sale. It was a better market for new homes than resale. Things change.

While offering new homebuyers unprecedented incentives to buy a new, homebuilders are curtailing their future building plans for 2007 and 2008. Expect to see builders dropping land options and reducing their planned number of new homes until their existing commitments are off the books.

Landowners should expect to see a drop the value of their property. Builders with unsold inventory will not close on over-priced lots in order to build more unsold standing inventory. A receding tide lowers all ships.


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