SURPRISE GAIN IN HOME SALES; NEW HOUSING: Builders say local inventory created by boom is largely depleted

By TOM BAYLES and AARON KESSLER STAFF WRITERS

The struggling real estate industry got a September surprise, with sales of new homes rising an unexpected 2.7 percent last month in a possible signal that some markets might be bottoming, at least in terms of inventory.

The lion's share of September's gain came from the West, with a 22 percent gain, likely reflecting California, where builders have slashed prices enormously to entice buyers. But the South -- and thus Florida and Southwest Florida -- also saw a 0.7 percent increase, the Commerce Department reported on Monday.

The spike in sales nationally left a total of 394,000 unsold new homes on the market at the end of September, down a record 25.4 percent from September 2007.

Local builders say that with virtually no building going on, this region has finally eaten into the bulk of the new home inventory left over from the housing boom. That has demand starting to build, though the picture is complicated by the near-freezing of financing that occurred during the last month or so, they said.

"All of us in the local industry believe the local, new inventory has been used up," said long-time builder Pat Neal, president of Lakewood Ranch-based Neal Communities. "I'm actually opening up a new community because now there is a balance of supply and demand. The local supply and demand balance for new homes is now reaching equilibrium."

Neal, who has 67 employees now compared with about 150 during the boom, has 14 subdivisions with 38 open models in Manatee and Sarasota counties. He sold three homes during the weekend.

"A lot of people are taking advantage of the worldwide financial crises to get deals because they want to get bargains," Neal said. "Yet there is certainly going to be some caution while there is this financial turmoil."

Lee Wetherington, another well-known Lakewood Ranch-based builder, said it will take three to four more months to get a true picture of whether the sales numbers signal a turnaround. Economic woes and an unstable stock market weigh on buyers' minds, he said.

"We feel very strongly that with the lack of construction in the past couple of years that there is some demand building up," Wetherington said. "We're going to continue to be very aggressive in the marketplace."

But another barrier to making new sales is that many of the people who want to buy cannot get out of their current homes because the massive declines in values during the past three years have them owing more than they can sell their houses for.

Still, that same dynamic is a positive for buyers of new homes, which are back to 2002-03 prices, Wetherington said.

"The new home inventories are coming down to historically low levels and it is still a buying opportunity," he said.

Prices for new homes in the Sarasota market started dropping precipitously at the beginning of the housing bust, said Jill Hoffman, Pulte Homes' vice president of sales. That is especially true when compared with other parts of the state, such as Naples, where Pulte is quite active.

Because of that phenomenon, many builders had anticipated that Sarasota would stabilize first as well, which seems to be what is happening. Pulte's sales in the Sarasota area have been gaining momentum, up 20 percent when compared with last year, and traffic is also up by a similar amount, Hoffman said.

"They have definitely exceeded our previous sales numbers completely," she said. "Sarasota is really coming back more quickly than we thought."

"I believe that the inventory has been basically depleted," Hoffman said. "Builders were not building any more, and there is now just a small amount still outstanding to purchase."

The company's DiVosta Homes communities -- including IslandWalk in Venice and The Isles in Palmer Ranch -- have proven to be hot spots, mainly because most amenities already are in place.

Pulte's prices have remained about the same over the last few months, Hoffman said. Prices of most builders are now more in line with the marketplace, which has helped fuel the boost in sales, she said.

The big picture

Economists had expected new sales would decline from the August level, which already was a big 12.6 percent drop.

The boost to sales in September came at the expense of pricing, with the median declining by 9.1 percent from a year ago to $218,400. That is the lowest new home price nationally since September 2004, a period when home prices were rising rapidly as the country experienced a five-year housing boom.

The surprising increase in September sales still left them 33.1 percent below the level of a year ago as the country is battered by the worst slump in housing in decades.

The report of the rise in new home sales followed news last week that sales of existing homes rose in September by 5.5 percent, the largest monthly gain in more than five years.

Florida as a whole took part in that rally, with 15 Florida markets rebounding to positive sales percentages in September.

But the local market did not join in. Sales for Sarasota-Bradenton were down 7 percent while Charlotte County-North Port dropped 19 percent. Prices fell 29 percent in the northern market and 19 percent to the south, taking the markets to November 2003 and September 2003 levels, respectively.

Analysts are not convinced that an increase in new home sales is the signal of any kind of bottom for the housing market. They, like the Southwest Florida builders, noted that the September gains came before the latest upheavals in financial markets which have raised new worries about the overall state of the economy.

Many analysts believe the country has already entered a recession. They are forecasting significant increases in job losses, which will make it even harder to mount a sustained rebound in housing.

Only the West and South were in positive territory last month for new home sales. Sales fell by 21.4 percent in the Northeast and by 5.8 percent in the Midwest.

Builders nationwide have been sharply cutting back on production, trying to get inventories more in line with sales. Even with the latest drop, the inventory represents a 10.4-month supply at the September sales pace, still a historically high level.

The inventory of unsold existing homes also is remaining near historic highs as that market's supply is being boosted by a record wave of home foreclosures.

Information from The Associated Press was used in this report.