Too many homes, not enough buyers

Facing fewer buyers and many, many homes for sale, South Sound builders are pulling back and getting extra promotional.

Builders have slowed construction schedules in recent months, cut prices, offered their biggest-ever incentives and even rented out finished homes that couldn’t find a buyer.

Sales of new homes for the first three months of the year are down 45.3 percent in Pierce County compared to the same period in 2007, and compared to a 36 percent drop for all home sales in the county, according to Northwest Multiple Listing Service numbers provided by MLS director and Windermere broker Dick Beeson. New-construction offerings, however, have also shrunk, with such homes comprising 18.5 percent of what was for sale in Pierce County last month, compared to 24.7 percent the same month the year before.

Still, builders are looking to unload even more of what’s built and empty. In March, 1,485 new homes, excluding condos, were listed for sale.

It used to be that half of the homes sold by Soundbuilt, one of the area’s largest builders, were properties with homes either under construction or yet to be built, said Gary Racca, owner of the Puyallup company.

Uncertainty about the economy, however, means consumers are holding off, and now 90 percent of the company’s sales are on ready-to-move-in homes. But completing homes without a committed buyer can be risky, because the builder fronts the cost and often has to secure and pay to finance the construction.

The company has launched a first-time promotion: a price guarantee, which allows someone to buy a not-yet-constructed home at a locked-in price and ensures that if Soundbuilt lowers prices on other similar houses in the subdivision, the buyer will get the same discount.

“We didn’t do that six months ago. We didn’t do that three months ago,” he said. “Once we put that out there, we got some people off the fence.”

WHERE PIERCE COUNTY STANDS

New construction in Pierce County is not suffering as much as it is in places like Southern California and Florida, where homes have been auctioned at deep discounts and list prices sometimes drastically reduced.

But there have been some price drops locally to entice buyers and clear out inventory.

In the past six months, Soundbuilt has sliced as much as $30,000 off prices on homes in Pierce County, Racca said. Not on all of them, however. The company recently started raising prices on houses at the Navarro project in Puyallup.

“We dropped them so low to get the momentum, and now the momentum’s back,” Racca said.

Jerry Mahan, an agent at John L. Scott who is also a developer and builder, said the new-home market was oversold in the South Sound. Market adjustment includes lower prices, but on a time-limited basis, he said.

‘WE HAVE TO PRICE ACCORDINGLY’

Nine months ago, Mahan’s construction company had 60 homes for sale. Now it has about 10.

“On these next 10 houses I’ll give some good pricing. But after that, my prices go back up,” he said. “Every time there’s a slow market, a stronger one follows. There’s only so much land.”

Bennett Homes is building about 30 percent of what it expected to be putting up at two Gig Harbor projects, Harbor Crossing and Chelsea Park, said Gayl Van Natter, the company’s vice president of sales and marketing. It’s also holding off on four other projects for which it owns land in the harbor area.

Chelsea Park’s grand opening takes place this weekend; Harbor Crossing, an urban village concept near the new Costco and YMCA, went on sale in September. While she declined to say how many have sold, Van Natter said the response has been “very disappointing.”

“The industry as a whole right now is severely depressed, and all of us who are building now bought at absolute top dollar, so what that means is we have to price accordingly,” she said.

Harbor Crossing homes start in the mid-$400,000s; Chelsea Park prices are in the high-$600,000s and up.

But building slower doesn’t mean Bennett Homes won’t do more in Gig Harbor.

“We’re very bullish on that area. Once the market recovers, we think it’s a real sleeper. We think it’s the next one to explode,” she said.

Bennett Homes also recently debuted a price-guarantee program that locks in a price not only from pre-sale to closing, but also for one year after the home is purchased. The new program coincided with the company’s best month of sales in more than a year, she said.

TOUGHER LOAN CRITERIA

Pierce County building permits for new homes through April 27 were off 57 percent compared to the same months in 2007, said Bill Riley, vice president of government affairs for the Washington Association of Realtors and an owner of GMAC Real Estate in Puyallup.

Bellevue-based Quadrant Homes, unlike other builders, does not put up anything that isn’t already pre-sold.

In response to today’s market, however, Quadrant is starting construction on five new Puget Sound homes every workday this year, compared to the seven a day it did in 2007, said President Peter Orser.

Consumers are struggling to meet new loan criteria to qualify for a mortgage and, as a result, staying on the sidelines, he said.

“We’re seeing traffic out there, not as much traffic. We’re making sales, not as many sales. We get cancellations as well; that’s a typical part of the process,” said Orser, who declined to give specific numbers on traffic or cancellations.

He pointed, as many in the real estate industry do, to a seven-year time frame – the amount of time an average homeowner spends in a house – as still good for reaping a sound investment off a home purchase.

“What goes up must come down, and what went down must come up. This is a cyclical industry. We’ve seen it before; we’ll see it again,” he said.

LEASE-TO-OWN DEALS

Some builders are offering lease-to-own options for homes sitting empty longer than they anticipated.

“It’s kind of a backup plan, but you can only do it where you’ve got strong population and employment growth,” said Riley, whose home building company has done some lease-to-own deals.

Riley said he expects sales activity to sustain at current levels through the summer with year-over-year gains surfacing in the fall, in part due to the tax rebates and other federal help on the way.

Windermere agent Gary Hendrickson, who specializes in new construction, said today’s builders need to know their market.

“If you’re building it just because you own the lots, it will be much more difficult than it has been the last couple of years,” he said.

Affordability will continue to be a strength that builders can use to lure buyers, he said.

“It was always ‘Come to Pierce County because it’s more affordable than King,’ and it still is,” he said.

Devona Wells: 253-597-8652

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