Builders report slower sales

Builders have sold 6,265 new homes over the past seven months in Placer, Sacramento, El Dorado, Sutter, Yolo, and Yuba counties. That’s down 4,655 units during the same time period last year according to Hanley Wood Market Intelligence, an industry-tracking firm based in Southern California.

In addition to fewer sold units builders are experiencing a record number of buyers backing out of their purchase commitment. Buyers having second thought and canceling their purchase contracts happens but usually the cancellation rate is less than 5 percent. Most builders are now reporting 23 percent in Sacramento County and 30 percent in El Dorado County. So what’s up with that?

Consumer confidences has been a driving force in the housing market. Homebuyers purchased homes beyond the traditional reasons of shelter, security, long-term appreciation and equity building by paying off the mortgage over a long period of time.

Homebuyers up until this last year have been trading housing like baseball cards. Investors and flippers accounted for nearly one-third of all home sales during 2005 in the capital region. Speculation was rampant. It could not last forever and we are now feeling the morning hangover from the wild party of the last five years.

Builders will slowly reduce their standing inventory and carefully evaluate and restrain their future construction commitments. With fewer new units on the market the builder incentives will disappear and the new home market will slowly come into balance between existing supply and demand. Everything has it cycles.