New-home sales soared across the country in April, the government said Thursday, but the surprising increase came only after builders slashed prices to shrink swollen inventories.
What's more, the 16.2% jump from March -- the biggest in 14 years -- was driven largely by increases in the South. In the West, which includes California, sales were up 8.5%.
Demand remains weak in Southern California. Inventories have continued to grow, and experts say builders in the region have not been as aggressive in cutting prices as they have elsewhere in the nation.
The government report "does not jibe with the reality" in Southern California, said Peter Dennehy of Sullivan Group Real Estate Advisors, a San Diego-based consultant to builders. "Sales are what they are and that is they are lower than what they were last year."
DataQuick Information Systems of La Jolla reported a 19.6% decline in the region's new-home sales last month from March. And sales were down 45% in the first quarter compared with the year-earlier period, according to Hanley Wood Market Intelligence, a Costa Mesa-based building industry research firm.
Builders nationwide have been hurt by weakening demand. And the ranks of prospective buyers for entry-level homes have been thinned as lenders have toughened their standards amid rising defaults and foreclosures.
That's why many analysts were surprised Thursday when the Commerce Department said sales had risen sharply. But the agency also said prices of new homes fell by 11%, the biggest monthly decline on record.
"Aggressive sales techniques being employed by builders are now showing some success," David Seiders, chief economist at the National Assn. of Home Builders, said in a statement.
In Southern California, builders are more likely to offer incentives, rather than price cuts, to drive sales. These include paying closing costs, chipping in for the landscaping and subsidizing mortgage payments.
This strategy has helped builders avoid discounting their products, buoying their prices. In April, the median new-home price rose 3.2% year over year to $454,000, DataQuick said.
"Median asking prices are still rising even though sales have declined, and that disconnect hasn't hit our numbers yet," said Patrick Duffy, a Hanley Wood managing director. "Incentives are still masking price declines."
Hanley Wood reported a 4.8% rise in the median new-home price in the first quarter.
Price reductions are being made in some areas, however, especially in outlying communities where builders are competing amid slumping demand.
In the Riverside County city of Perris, for example, KB Home has cut prices on certain models at its KB-Martha Stewart community to $355,990, $18,000 less than the same home sold for in January.
"While we're very sensitive to price points, and we are adjusting prices, it is community-specific," said Jeff Mezger, chief executive of Westwood-based KB Home.
At Pulte Homes' Heritage community in Rancho Cucamonga, where homes range from the high $500,000s to the high $600,000s, asking prices are on average $30,000 lower now than they were in November, according to company sales brochures. The price reductions are in addition to sizable cash incentives the builder has been offering buyers for much of the last year.
"Most of us are working through our inventories," said Michael Dwight, senior vice president of Frontier Homes, a builder of entry-level homes in the Antelope Valley and the Victorville area. Still, Dwight said, Frontier's sales are down about 35% year over year.
One way his company is reducing the price of its homes is by building smaller ones.
After persuading the city of Hesperia to ditch a policy that every new home had to be at least 1,800 square feet, Frontier designed a new community of 1,300-square-foot houses with prices starting in the mid-$200,000s. Sales at the subdivision, called Barcelona Heights, "are robust," Dwight said.
New-home sales constitute about 15% of total home sales. Real estate experts, however, keep an eye on the numbers because price swings up or down in the new-home market can help predict sales trends in the larger market for existing homes.
At the same time, a number of economists and analysts discounted Thursday's Commerce Department report of a steep rise in sales as an anomaly that probably would be revised downward in the coming weeks. Wall Street analyst Daniel Oppenheim issued a report to his clients with this cheeky title: "Sales Up in April? If Only ..."
"We think that the reality is that trends worsened," said Oppenheim, an analyst for Banc of America Securities. One reason the Commerce Department statistics seem overstated, he said, was that the government doesn't account for canceled sales contracts on homes that are returned to builders' inventories.
Seiders, the builders trade group economist, noted that good weather in the South spurred sales there -- leading to a 27.8% increase on an annualized basis. That helped boost the national figures.
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Sales of new homes surged in April, driven largely by a sharp rise in the South, while the median price of a new home fell a record 11%.
Change in new-home sales in April from March, by region
Sources: Census Bureau, Housing and Urban Development Department