Buyers nationwide push new-home sales up 27%

By Roger Showley, UNION-TRIBUNE STAFF WRITER

Saturday, April 24, 2010 at 12:02 a.m.

Sales of new homes surged across the nation last month, the Commerce Department reported Friday, in
the latest sign that the beleaguered housing market might be righting itself after three years of decline.

The department said 411,000 single-family homes went into escrow in March, up 27 percent on a
seasonally adjusted annual basis from 324,000 in February. One economist said it was the highest
month-over-month increase since 1963 and could mean that the battered construction industry will begin
to add jobs.
In San Diego County, no comparable new-home figures are available. But Sharon Hanley, an Oceanside
new-housing market analyst, said that for the first three months of the year, sales were up 15.9 percent
from 2009, rising from 578 to 670 this year.

Hanley, like many analysts, said part of the increase may stem from the federal homebuyer tax credits
— $8,000 for first-time buyers, $6,500 for move-up buyers — that expire at the end of April. Homes
must close escrow by June 30 for buyers to take advantage of the credits. A $10,000 tax credit for
California buyers will become available May 1.

“These robust numbers say the credit is working,” said David Crowe, chief economist at the National
Association of Home Builders. He predicted sales will rise through April, weaken modestly, and then
remain stable through the rest of the year.

Borre Winckel, chief executive of the Building Industry Association of San Diego, said he remains
cautiously optimistic based on signs that builders have stopped laying off workers and a few are adding
employees. But no one is moving aggressively to ramp up building again, he said.

“I think very few builders are extending themselves too much,” Winckel said. “I don’t know of any
builder who is so bullish that he is overprojecting units, opening up phases bigger than, in truth, they
believe they will be able to sell.”

The rise in new-home sales was seen nationwide. Sales grew a whopping 44 percent in the South and 36
percent in the Northeast. They rose about 6 percent in the West and 3 percent in the Midwest.

The number of new homes for sale in March fell 2 percent to 228,000. Still, new-home sales are down
70 percent from their peak in July 2005, and some analysts predict they will sink to the winter’s dismal
levels after the tax credit runs out.

“I expect we’ll see a very sharp drop back,” said Paul Ashworth, senior U.S. economist with Capital
Economics.

Nevertheless, at a housing conference in Cambridge, Mass., Karl E. “Chip” Case said recent housing
statistics make him more optimistic than he’s been in years. He helped create the Standard &
Poor’s/Case-Shiller Home Price Index, a widely watched gauge of prices. The next report, due Tuesday,
will be based on a three-month rolling average that ended in February.

“I have never seen more optimism in the last two years than I’ve seen in the last two weeks,” he said.

Case described the housing swing as potentially occurring in a “V” shape rather than a “U” as many
other forecasters have described.

That’s because while much distress remains in the overbuilt and overfinanced housing market, excesses
are being absorbed and construction remains at near-historically low levels. New-home building is
barely above the 500,000 annualized mark, far below the boom-time production of more than 2.2
million in 2006.

On the other hand, Case said demand is not building up to boom-time levels.

He said recent census data showed household formation is lagging the usual trends. Not only are
families doubling up and many young singles moving back with their parents after failing to get jobs,
but foreign workers are not moving to the United States and some are actually moving back to their
home countries.

Case was addressing a conference of real estate journalists at the Lincoln Institute of Land Policy.

He said California is coming back strongest among the hardest-hit states, with Arizona, Florida and
Nevada still deeply affected by overbuilding and foreclosures.

“The city I’m thrilled about is San Francisco,” he said.

Case said prices there bottomed out at 50 percent below their previous peak in July 2009 and were down
about 37.9 percent in the January index, released a month ago. Since last April, he said, prices have
risen 15.2 percent. San Diego is up 8.7 percent in the past year, and Los Angeles and Orange County are
recovering. Only in the Central Valley is California’s housing market still dicey.

Case cited two factors that could cause the market to fall back: higher interest rates and no significant
improvement in employment. But he said recent data on new and existing home sales and housing
construction convince him that conditions are starting to improve.

Mike Larson, a real estate and interest rate analyst at Weiss Research, wrote in a research note Friday
that buyers are responding to lower prices.

“That is unambiguously good news for the market going forward,” he said.

Larson said the monthly rise in new-home sales in Friday’s report was the biggest since April 1963,
when it was 31.2 percent.

On Thursday, the National Association of Realtors said sales of existing homes had also exceeded
expectations, rising 6.8 percent.

“The homebuyer tax credit has been a resounding success as these underlying trends point to a broad
stabilization in home prices,” said Lawrence Yun, the chief economist for the National Association of
Realtors.

But there were other factors that indicated the sector was not just about the artificial impetus of the tax
credit, such as an increase in builder optimism and housing starts. Larson said he expected to see
continued improvement in construction activity.

“Builders are running extremely lean in terms of inventories. This is going to help lay the groundwork
and give the builders the confidence they need to start building new homes.”

The New York Times and MCT news services contributed to this report.

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