eNews Spring 2007

eNews

Southern California Edition
Spring 2007

eNews | Spring 2007

Builders Still Challenged to Meet Sales Targets
With Southern California showing a 2% quarterly dip in the median new home price, we anticipate the growing backlog of homes (due to the much slower current sales volume) will keep new home prices in check through the remainder of the year. No county is immune to the downshift in the housing market with each posting quarterly declines in annualized new home sales. We expect all counties to post double-digit losses in new home closings this year, although Los Angeles County should experience the smallest decline of 15%.

Sales in the previously high-volume tertiary markets such as the Antelope Valley and the High Desert have slowed substantially. Gas prices, which continue to escalate, now influence buyers’ decisions for these commuter markets. By comparison, well-located (and well-priced) projects that offer an easy commute to major employment nodes have fared better during the downturn. High-density urban developments that offer great walkability to retail are also attracting buyers. In Rancho Cucamonga, Shea Homes’ two attached projects – 24-Seven and Three-65 – boast a whopping combined sales pace of 28 homes per month!

Finding qualified buyers will continue to be the challenge for builders this year in light of stricter lending standards and the sub-prime fallout. The key for builders, particularly in entry-level markets, will be to present homebuyers not only with a price sheet and a long list of incentives but to translate these numbers into a monthly payment. This is particularly important in markets where varying tax assessments play a large role in the total monthly payment. A few savvy builders have given mortgage representatives and in-house lenders a more prominent role in the sales office to better explain to prospective homebuyers how their dream home can be within reach. An easy comparison chart of how your project stacks up against local competition can be an invaluable marketing piece in today’s market.

Dealing with The Credit Crunch

There doesn’t seem to be a day that goes by without some newspaper headline touting the sub-prime mess and pending foreclosures. During the height of the recent housing market boom, just about anyone could get a mortgage, and many did with no money down. These no-down-payment loans flooded the market in 2005 and 2006, which allowed the lower-qualified end of the homebuying pool the ability to afford a home. According to Lehman Brothers, sub-prime loans represented approximately 20% of the mortgage market at the end of 2006. With the recent shutdown of many sub-prime lenders, the stricter credit guidelines that have resulted at traditional lending institutions, and declining home prices (which means minimal if any equity build-up in homes purchased in the past year or two), homeowners looking to refinance their current adjustable-rate loans will find it nearly impossible.

Rising levels of foreclosures will continue to put upward pressure on inventory and keep a lid on prices. The hardest hit areas for foreclosures will be in the more affordable markets, where a large percentage of recent homebuyers put no money down on their home. In Southern California, these more “exposed” areas include some of the southern and central parts of San Diego County, central and high desert areas of the Inland Empire, and the Antelope Valley in LA County. According to the UCLA Forecast, San Diego County’s Notice of Defaults that will become foreclosures is expected to be greater than 40% in the 1st quarter 2007, the highest level in Southern California. Delinquencies and foreclosures are expected to increase through the next two years, as adjustable mortgage rates continue to reset.

Strategies to deal with tightening credit:

Develop strong relationship with mortgage provider, whether in-house or 3rd-party
Provide lender representative on-site during peak sales times
Design “out-of-the-box” financing opportunities using incentive dollars
Market monthly payments (don’t just advertise $X towards closing costs but monthly payment costs lowered by incentives)
Eliminate tie-in of incentives to an in-house lender (gives buyer ability to use alternative financing if in-house lender has stricter lending standards)
List “Starting From” prices on signage to help draw in more qualified buyers (especially helpful in markets where there
is a lot of competition such as
the Dairylands)

30 Years in the Making: Headlands Reserve, LLC.
Makes Waves with the Strand at Headlands
After 30 years of planning, The Strand at Headlands in Dana Point has captured the essence of Southern California coastal living. Slowing housing market? Not based on sales at this exclusive community. Offering the last significant undeveloped ocean front property in Southern California, The Strand at Headlands has met with phenomenal success. The first phase of 25 custom home sites released in November of 2006 sold out within 72 hours for an amazing $148 million. Prices for the 10,000 sq. ft. Phase I lots started in the mid-$3 million’s and went up to nearly $8 million for front-row lots (situated just 25’-30’ above Strand Beach).

“The demand for oceanfront is there,” says Sanford Edwards, the developer of The Headlands community. “There are only so many miles of coastline.” The Headlands encompasses 121 acres of prime real estate including the 6-acre Strand Beach and over one-mile of ocean frontage. The community plans 118 custom homesites with lots offering white water, white sand, or blue water views in two distinctive neighborhoods, North Strand and South Strand. The Headlands will also include a 90-unit luxury hotel and spa which will overlook the Dana Point Harbor. A 1.6-acre retail and commercial center, as well as five public parks offering over 68 acres of open space will complete the community.

“When we first took a look at pricing the lots at The Headlands, we were excited by the nearly unlimited potential for the community. It’s not everyday that you have the opportunity to be part of such a landmark piece of property,” notes Michelle Wolkoys, Principal at Meyers Builder Advisors. The community will feature all the necessary amenities demanded by this high-end lifestyle homebuyer including 24-hour gate-guarded security, direct private pedestrian and golf cart beach access, and a 9,000 sq. ft. beach club/recreation center. In addition, miles of hiking trails, parks and conservation areas will create a truly unique living experience.

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