Three executives discuss the challenges of selling homes while buyers
wait for prices to hit bottom
By Jim Wasserman - Bee Staff Writer

Last Updated 6:19 am PDT Monday, June 25, 2007
Story appeared in BUSINESS section, Page D3

It's hardly on the scale of two years ago, but across the Sacramento
region it's still easy to see entire neighborhoods of new houses
rising.

Selling them now has become the challenge for an estimated 84 home
builders who work the capital region. The five-year housing boom that
crested in July 2005 has given way to some of the slowest sales since
the late 1990s.

Locally, as nationally, home builders are cutting costs, production
and, in some cases, staff. Through May they closed escrow on 3,564
homes in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo
and Yuba counties, according to DataQuick Information Systems. That's
1,245 fewer than the same time last year, which was then considered a
poor performance.

Now builders come to summer, one of their busiest sales seasons.
Executives of three suburban Sacramento home builders met with The Bee
recently for a round-table discussion about the area market.

Two are Sacramento division presidents for national builders -- Kevin
Carson of Irvine-based John Laing Homes and Christopher Cady of
Michigan-based Pulte Homes. A third is the second-generation owner of
a local home building firm, Sid Dunmore of Granite Bay-based Dunmore
Homes.

Here are a few of their observations as summer begins.

What is it that buyers are looking for today?

Sid Dunmo What we're seeing in terms of buyers, they're wanting to
put very little down, if anything. There's still a lot of people we
would classify as subprime. There are still obviously instruments
available for that. If they have a high enough credit score, they can
still get 100 percent financing.

We're seeing they don't want to pay a lot in HOA (homeowner
association) dues or Mello-Roos fees. And they want a lot of amenities
for a very low price, in a great location.

Kevin Carson: We have seen a spike in summer traffic. But as Sid said,
it's the no money down and the amenities package, and they continue
shopping. But there are a lot of buyers out looking in comparison to
60 days ago.

Christopher Cady: I think there's a certain sense of people saying,
"Are you at the bottom or are you not at the bottom?" People are still
looking for the values. I think the values are there. The mortgage
rates are down. ... I think with where the builders have been -- some
of the incentives that have been out there the last 15 to 18 months --
I think things have pretty much settled down in that regard. So people
are now getting back to the fundamentals: Is it the right
neighborhood? Is it close to my job? Is it the right school district?

* * *

Buyers' big obsession: Where is the 'bottom?'

Dunmo The problem with trying to hit the bottom of the market is
very few people are able to do that successfully. What you'll end up
seeing happening is you'll hit a bottom, and it will bounce from the
bottom. And it will come up, and you'll have a lot of customers come
back in and say, "I want to buy because I saw, 60 days ago, 90 days
ago, a certain price." And that's no longer available. And so I think
right now we're probably bouncing around the bottom.

Cady: People have gotten so much into that day-trader mentality with
houses. If they just get back to the fundamentals and think about why
they're making a home purchase decision: Is it the job center, the
schools, your family got bigger, you got a promotion, all those
different stages you go through? ... As long as they think this is a
long-term decision they'll be fine.

If they think they're going to try and flip it in six months or a year
or two years, again it's the same problem you have when you're trading
stocks. You're not that good. You're not going to be able to time it
right. You need to make the house purchase decision. This is what I
want, this is what's best for my family today. This is what I'm
willing to do.

* * *

A debate on oversupply and life after it ends

Dunmo You have to understand most of the overhang was created by
ourselves. And I hate to say it, but it was mostly the public
builders, which couldn't seem to stop building. In light of no sales
they just kept on building, and they created this huge overhang. And
so now they're eating through it. The private builders haven't been
doing that. We've been matching our production to our sales. And so we
don't have an overhang. When that does adjust, we think it will adjust
somewhat quickly. Not overnight, but somewhat quickly. When the bounce
happens, you'll see prices jump $10,000 or $20,000 very quickly.

Carson: Not only will prices jump. You'll also see the best spots and
prime locations go first. Because they're what buyers are looking for.
Incentives will go away. Inventory will start to dwindle, and all of a
sudden there won't be those prime locations that there are right now.

Cady: You're seeing a decrease in supply now. Permits, starts have
been off 40- to 45-plus percent. ... There's not as many houses coming
out of the ground as there were. Somewhat to Sid's point (about
overproducing) I'll completely agree with his private-public comment.
But definitely, there's a different business model there and how
people adjust to that.

Dunmo There are good actors and bad actors on the public side as
there are on the private side. I'm talking about the bad actors on the
public side, the ones that just couldn't stop themselves from building
houses regardless of how many sales they made. There were a lot of
public builders that actually did cut back and did like a private
did. ... Others just kept building like there was no tomorrow.

* * *

A few last words about finding homebuyers

Carson: The main thing you can control is to build a quality house,
keep your customer satisfaction, deliver the best house possible and
make sure you're in the locations where people want to live. All of us
have been in this area a long time and know those desirable
neighborhoods and communities and that's where you want to focus.

Dunmo Our sales staff tries to do that on a daily basis.
Fortunately, or unfortunately, the media is a big part of that. As
long as we have negative media, it's going to affect the buyers'
mentality. If we have positive media, it affects them on the positive
side. If you see things coming out that interest rates are low, job
growth is good, income growth is good, all those things, buyers feel
good about where they are today.

There are prospects for continued employment, advancements, raises,
things like that. Then they feel more comfortable about going out to
buy in the market. It's the insecurity that keeps them out. Right now,
there's just a lot of buyer apathy. Once we get past that, we'll have
a different market. It will balance itself out.

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