HousingZone

New Home Indicators Continue Improved Signs

News Release -- 5/18/2009 9:55:00 AM

Irvine, Calif. — Following the noteworthy improvements reported in April, the John Burns Real Estate Consulting May survey results suggest new home sales and traffic have maintained improved levels, while builders’ expectations for the near term retreated slightly.

In May 2009, 234 public and private builder executives from over 159 companies around the country provided market ratings that represent conditions at 1,774 new home communities in 79 unique metros.

On a positive note, the percentage of home builders rating current sales as Poor continues to decline, now at 53% compared to 56% last month and 87% in January.

“We think the season’s modest uptick is fueled by Spring euphoria,” said John Burns, CEO of Irvine, Calif.-based John Burns Real Estate Consulting. “It’s been supplemented by improved affordability, low mortgage rates on conforming loans, and federal and state new home tax credits.”

Further improvement is tempered by the ongoing competition from foreclosures, limited credit for both buyers and builders, and rising unemployment. Concerns over escalating REOs and further price erosion still weigh heavily. “The changes to appraisal law that went into effect May 1 will likely be another leg down for new home sales,” said Burns. “Appraisers are now more likely to compare new homes to foreclosures, which can be ‘apples and oranges’ in many cases.”

Survey Highlights:

§ Builders anticipate negative impact from new appraisal code (NEW):

o 53% of respondents indicate the May 1 changes to the Appraisal Code of Conduct will have a significantly negative or somewhat negative impact on their selling process.

§ Average net sales per community rose to 1.9 nationally: This slight increase is the highest net sales rate since July 2008, and no region of the country reported declining net sales per community. However, the boost in sales is dominated by the entry level price points, with only spotty participation from move-up price points.

§ Sales and Traffic Expectations Flat: Builders’rating of current sales matched last month, which marked a record level since our survey’s inception. Traffic also remained steady and expectations for the next 6 months lost a little footing.

§ More builders start homes: 73% of our participants started homes this month, compared to 70% last month.

§ Pricing Net of Incentives Declines at a Slower Rate: Overall, the direction of new home pricing has shifted more towards Flat than Declining, but only Texas reported flat home prices for the month.

§ Inventory Still Declining: The average number of unsold, finished units per community is continuing to trend down nationally, to 3.8 units from 4.0 last month. This is the lowest inventory level since our survey began in June 2008. Several builders reported inventory getting tight in their respective markets.

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