2/27/13
New-Home Sales Jumped in January - WSJ.com
EARNINGS
Updated February 26, 2013, 7:39 p.m. ET
Builders Fuel Home Sale Rise
Developers Overlook Buyers' Credit, Cash Problems, Luring Them to Pricier Houses
By ROBBIE WHELA N and CONOR DOUGHERTY
Sales of new homes are surging in the U.S., far outpacing results for less expensive existing homes
and creating an unusual disparity in the housing recovery.
The trend partly reflects the small inventory of previously owned homes, now at a 13-year low
after investors picked over the long-depressed market. But the strong sales of new homes also
show how the nation's home builders have mastered the art of selling, even to cash-poor buyers or
those with spotty credit histories.
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New-home sales jumped 28.9% in January from a year
earlier to the highest annual sales pace in four years,
according to data released Tuesday by the Commerce
Department. Sales of previously owned homes rose
9.1%. The disparate selling pace exists even though a
typical new home costs 37% more than one already
built, the widest price gap since the figures started
being tracked in 1968, according to an analysis of home
prices by Barclays Capital.
In the past two years, more home builders have offered
to pay closing costs and arrange home loans through inhouse mortgage operations. They have hosted free
credit-counseling sessions for buyers with bad credit
scores, and made heavy use of government-backed
mortgage programs that allow buyers to get a home
with little or no down payment.
The result is that for many buyers, it has become far
easier to buy a new home than an existing one. "It's as
if people were going to the car dealership and realizing
that there aren't any used junkers left, so they're
buying these shiny new SUVs," said Ivy Zelman, an
independent housing analyst.
In some cases, that means buyers are ending up paying
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New-Home Sales Jumped in January - WSJ.com
more than they expected for a house, raising worries
that some buyers are biting off more than they can
chew.
Two years ago, Lynda Riley and her husband started
combing listings of existing homes in Stafford, Va.,
about 40 miles from Washington. With past credit
problems, including a 2008 bankruptcy filing, they
figured they would spend $200,000 to $250,000 for a
townhouse or three-bedroom.
After seeing more than 10 preowned homes, Ms. Riley
and her husband spent far more than their budget,
paying $426,000 for a new, four-bedroom house with a
two-car garage and shiny kitchen appliances. Their
builder, Drees Homes of Fort Mitchell, Ky., helped with
$5,000 in closing-cost assistance, and they received a
gift of $12,000 from a family member to help cover the
down payment.
"It's much easier to buy a new home than an old one,"
said Ms. Riley, a 41-year-old mother of two who works as a case manager for children with
developmental disabilities in Alexandria, Va. "The builder's whole attitude was, 'No worries.' They
help you and they trust you. They really, really want you to get approved."
One reason why inventory levels of existing homes are so low is that investors have picked many
markets clean of the best-quality distressed homes. At the same time, many homeowners,
worried that prices have not yet improved sufficiently, remain reluctant to list their homes. This
month, the National Association of Realtors reported that the number of homes for sale fell to 1.74
million in January, the lowest level since December 1999.
"Steals are getting harder to find, and the number of bidders is up. At some point, you have to
stop holding out for a steal because you need a place to live," said Robert Tayon, a Barclays
economist. "For an increasing number of buyers, this means buying a new home."
Stephanie Poynor, a schoolteacher and mother of two,
traveled from Kentucky to Tampa, Fla., last spring.
It's possible that home prices have hit a bottom,
After two frustrating months of looking at previously
but heavy government involvement to stabilize
the mortgage market and the broader economy
owned homes, many of which were purchased by
has made it harder to gauge the durability of
investors before she could even make an offer, she
recent home-price gains, says Yale economist
Robert Shiller, the co-creator of the S&P/Caseturned to a local builder, Domain Homes, and bought
Shiller index that bears his name. Read More
the second model home she saw, a four-bedroom in a
A Look at Home Prices by Metro Area
small gated community near the military base where
her husband recently got a job. The Poynors paid
$272,000, or nearly 10% more than they hoped to pay.
Interview With Robert Shiller
"We wanted to just go buy some place and be done with it. But we kept running into other people's
baggage. Either the house wasn't livable, somebody else had it under contract, or you had to wait
six months until the paperwork went through," she said. "This place was new. It didn't come with
any baggage."
Builders have stepped up construction in response. Many of the top U.S. builders have reported
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New-Home Sales Jumped in January - WSJ.com
double-digit growth in orders for new homes, leading to construction starts at an annual pace of
613,000 single-family homes in January, a gain of 20% over a year earlier, according to the latest
Census figures.
This has been a lift to the economy at a time when overall growth is slow. After dragging on
growth since 2006, residential fixed investment, which is driven by home building, contributed
just over a quarter of a percentage point to the nation's 2.2% growth in gross domestic product
last year.
While credit remains tough to get, home builders, with help from government programs, have
eased the process considerably. Most of the Rileys' neighbors in Colonial Forge, a quiet, hillside
subdivision where they were the first buyers, have similar stories. As of January, 53 new homes in
their subdivision had either gone under contract or closed. Of these, 81% are expected to use loans
issued by mortgage companies associated with the development's builders, with little or no down
payment, backed by the Federal Housing Administration or the U.S. Department of Veterans
Affairs.
New-home builders have come to rely heavily on these agencies for sales. Housing research firm
Zelman & Associates reports that 50% of new homes sold in the fourth quarter of 2012 were sold
to borrowers with some kind of government-guaranteed loan, with the FHA backing 31% of newhome sales with a mortgage, compared with about one in 10 in the same quarter five years ago.
Miami-based Lennar Corp., the nation's third-largest seller of new homes, said FHA lending
standards now drive decisions about where to buy land, how much to pay for it and how many
features to put into homes.
"Back at the height of the market, our homes were fully tricked out. They had granite, brass,
everything," said Lennar President Rick Beckwitt. "As the market declined, we needed to pull
those specifications out of the homes," he said, in order to keep prices within the price limits for
buyers with government-backed loans.
Builders have relied on lender relationships or in-house mortgage units to help ride out the
downturn. Lennar, Toll Brothers Inc., PulteGroup Inc. and others have wholly owned finance
companies that provide their buyers with mortgages. D.R. Horton, the largest U.S. home builder
by sales volume, and K. Hovnanian Enterprises have launched programs to help buyers repair bad
credit, and they offer mortgage concierge services to get to the finish line.
Also, with so many buyers facing past credit troubles, builders are trying to expand their pool of
buyers by helping people repair their credit. Woodside Homes, based in North Salt Lake, Utah,
recently started a partnership with a local credit-counseling company to help prospective buyers
improve their credit scores. Joel Shine, the company's chief executive, noted that it is easy to sell
to people with pristine credit and a hefty down payment, and easy to deny people whose credit is
in tatters.
"Then there are the guys on the border—those are the ones we can help," Mr. Shine said. One of
Woodside's sales agents recently drove a buyer from a sales office to car dealership to sell the car
and unload the monthly payment.
Write to Robbie Whelan at [email protected] and Conor Dougherty at
[email protected]
A version of this article appeared February 27, 2013, on page A1 in the U.S. edition of The Wall
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New-Home Sales Jumped in January - WSJ.com
Street Journal, with the headline: Builders Fuel Home Sale Rise.
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