San Diego County's new-housing market is beginning to look like the TV game show “Let's Make a Deal,” or the incentive-driven new-car market, as builders throw in offers that include spiffy appliance packages, pet services and even a set of new wheels. Delores Conway, director of the University of Southern California Lusk Center's Casden Real Estate Economics Forecast project, said she has been monitoring the incentive and discount trends by builders, especially in San Diego. “San Diego is a leading indicator,” she said. “It was the first to have price increases, and it's the first to see a softening. . . . That's why we're all watching you. You're the leader.” So far, Conway said, builders have limited concessions to 5 percent or 10 percent of the sales price. “The last thing they do is lower the price,” she added. But this is all part of a normal real-estate cycle that Conway said is likely to continue for the next 18 to 24 months or even longer. “There's a softening in the market – the housing market is slowing down,” she said. “We've gone from a white-hot price appreciation to more normal levels.” Asked about industry mood, she said builders are exhibiting a certain degree of uncertainty, but “no massive running to the exits.” “I don't see signs of panic,” she said. Buttressing her observations, the National Association of Home Builders reported that builder confidence slipped 3 points this month to 39 in the NAHB-Wells Fargo Housing Market Index. A score below 50 signals a low to poor level of expectations based on traffic count at new-housing subdivisions, current single-family sales and expected sales for the next six months. Western builders continued to express the most optimism, but their confidence level dipped 9 points to 51. The Northeast index stood at 36; the Midwest at 21; and the South at 50. David Seiders, the association's chief economist, likened the confidence level to that of 1994-95 at the tail end of the last decade's major recession, when interest rates were rising. Back then, sales cooled in response, and the same response is occurring today with the Federal Reserve's recent spate of short-term interest rate increases, which have reached the 6.8 percent level on 30-year, fixed-rate loans, compared to 5.73 percent at this time last year. National builders doing business in San Diego, such as D.R. Horton and Brookfield Homes, reported drops in sales and indicated plans to adjust to lower building activity in coming months. Horton chief executive Donald Tomnitz was reported in a recent news story as calling San Diego “a very, very weak market for us.”
July 30, 2006