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Lansner on Real Estate “Builders unfazed by new home sales drop”


The U.S. Commerce Department reported this past week that new home sales in the nation fell to the lowest level in February in at least 48 years.

Sales of new homes plunged in February to an annual rate of 250,000, the Commerce Department said. That’s the lowest monthly total since the Commerce Department began compiling those figures in 1963.

But Tim Sullivan, a principal with Irvine-based John Burns Real Estate Consulting, wasn’t buying it.

“There’s a large margin of error associated with these numbers,” Sullivan said at the Building Industry Association’s annual Development Trends Conference in Newport Beach. “You can’t deny that the numbers are crummy. But are they as crummy as they seem?”

He wasn’t alone.

National Association of Realtors spokesman Walter Molony — who compiles NAR’s statistical press releases and lectures on national housing indicators — says that people give too much credence to the U.S. Commerce Department’s new home sales figures.

The media trumpets news about big monthly jumps or drops. The stock market fluctuates wildly in response to individual Commerce Department’s reports.

But what most people don’t understand, says Molony, is that the data “is based on a thin sample of contracts and takes four months to establish a trend.” The new home series is based on just 2% of the sales, he says.

Nonetheless, lowest sales numbers on record aren’t something to sneeze at. We asked builders at the recent BIA conference if the numbers give them pause about future projects …

Bob Yoder, Southern California president, Shea Homes: “They’re national numbers. We focus more locally. I guess we’ve had pause the last couple years. … I don’t think it changes anything from our nearer-term strategy or longer-term strategy. We’re still looking for those pockets where there’s pent-up demand.”

Brett Whitehead, president, Brandywine Homes: “It makes us think twice about putting down another new project. But we all have projects in the hopper. We’re pretty much prepared to move them. But it does make us concerned about when we want to bring new projects to market.”

Richard Douglass, division president, Ryland Homes: “While you have to be aware of the macro trends, I think there’s still potential for success with a micro market approach. That’s a significant statistic. (But) it’s a national statistic. Success is gained in a subregional market approach. The best example is the Irvine Ranch. … I don’t think (the nationwide trend) will affect that market.”

Tim Sullivan, John Burns Real Estate Consulting: “It is a consistent and respected source of information. However, I want to make sure I temper that consideration with the fact there’s a large margin of error associated with those numbers. There’s seasonality plays a role. We’ve had unbelievably bad weather both locally and nationwide (in February), and that’s had an effect. … I’m not saying the numbers are wrong. (But) they’re not as bad as they seem.”

Erik Pfahler, vice president of planning & acquisition, Shapell Homes: “Yes. We have to respond to the market. But we actually think there are a lot of buyers out there. The only difference is we have more competition with resales (previously occupied homes) than we had in the past.”

Dave Greminger, president, FieldStone Partners California: “I don’t want to say those figures don’t matter, but I prefer to look at micro-economic figures in our market than macro-economic figures. What’s driving the homebuying decisions really has to do with local things. It’s a local business. You can look at those national figures, but I don’t make my decisions based on that.”

Bill Watt, president, Baywood Development: “I don’t think one month’s results are going to have much effect. I think we’re all going to wait and see if there’s a trend there. And one month doesn’t make a trend.”