Report: Increased competition in strong markets hurting builders

As more home builders flock to housing markets that have remained relatively healthy through the downturn, the increased competition is starting to impact sales, according to new data from John Burns Real Estate Consulting. Raleigh, N.C., and San Diego are among the presumed stronger markets that are seeing lower year-over-year net sales per community.

April 29, 2011

As more home builders flock to housing markets that have remained relatively healthy through the downturn, the increased competition is starting to impact sales, according to new data from John Burns Real Estate Consulting.

Raleigh, N.C., and San Diego are among the presumed stronger markets that are seeing lower year-over-year net sales per community, according to Jody Kahn, VP with John Burns Real Estate Consulting. Kahn's insights are based on the firm's monthly survey of more than 250 public and private builder executives that represent over 1,800 new-home communities nationwide.

Kahn comments:

Today, Raleigh and San Diego, with their diverse economies and broad appeal, are alongside more distressed metros like Sacramento and Riverside-San Bernardino. However, these metros are in the red for different reasons.

Raleigh has been swamped with new market entrants in the last year. All opened well located, new communities on lots purchased at distressed prices, and introduced product priced at the sweet spot in the market. New home sales are occurring in Raleigh, but spread out across many communities. Net sales per community of 1.25 this March are diluted from 1.75 last year. The builders are reporting net sales of 0.5 to 2.5 per community.

San Diego's average net sales of 1.95 this March are well above the nation and region, but off from 2.55 last year. The builders reported net sales this March ranging from 0 to over 8.0 at a move-up community in a great North County location. The number of open communities is up from last year, and legacy projects are dragging down the sales average. South County is generally weaker than North County, though some new projects are performing well.

In Riverside-San Bernardino, average net sales of 1.29 this March are below the 1.71 from last year. The range of net sales reported by builders is zero to 3.0. Here builders face continued competition from distressed sales, plus improved affordability closer-in. The 2nd highest job losses in the state are further deflating sales.

Sacramento's 1.83 net sales this March came in well below the 2.50 from last year, as a high level of distressed activity paired with the biggest job losses in the state have eroded market conditions in the last year. The builders reported net sales ranging from 0 to 3.0 this March.

Read the full report.

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