Just 485 Sacramento-area buyers signed sales contracts for new homes in April, May and June, according to a report being released today. It was the industry’s worst sales performance in modern times, and possibly for a half-century.

While Sacramento’s market for existing homes is relatively robust again, new-home sales just keep falling. The primary factor this time: expiration of a tax credit that also sent new-home sales into a tailspin nationally.

Second-quarter new-home sales in the Sacramento area fell 21.3 percent from the first quarter and by 50.1 percent from the already dismal second quarter of 2009, said Greg Paquin, a Folsom consultant who issued the sales report.

“May and June both posted notable lags in sales and traffic,” he said.

May and June followed an April 30 deadline for first-time buyers to sign sales contracts and receive an $8,000 tax break. The end of the stimulus – designed to rev up lagging home sales nationally – has since caused them to fall.

But new-home sales haven’t dropped as far in Sacramento as they have in other parts of the country, said Chris Cady, Sacramento division chief for the region’s largest builder, Pulte Homes.

“We have the state tax credit. We’ve fared better than the rest of the country,” Cady said.

A California tax credit launched May 1 provides up to $10,000 for all new-home buyers. An estimated 8,800 buyers have applied for a combined $57 million, the state Franchise Tax Board reported Thursday. State lawmakers in March allocated $100 million for the tax break.

A similar tax break for first-time buyers of existing homes has received 23,680 applications for $100 million.

New-home sales are important because of the thousands of jobs they represent in the local economy. In booming 2004, builders sold more than 17,000 new houses in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties. The fall since has been harsh, wiping out 60 percent to 70 percent of Sacramento-area home building industry jobs, said Dennis Rogers, a senior executive with the Roseville-based North State Building Industry Association.

Local home builders, including Russ Davis, vice president of Elliott Homes in Folsom, said expiration of the federal tax credit “definitely had an effect” on sales in the region.

Economist Jeff Michael, a critic of home buyer tax credits, said they skew the market. This year, people who might have bought in May and June bought earlier to get the credit, said Michael, director of the Business Forecasting Center at the University of the Pacific.

“The numbers coming now are a little lower than they would have been,” he said.

Tax credit aside, economists such as Michael and industry analysts like Paquin say sales of new houses are now “abnormally low.” They point to a market overcorrecting as it seeks equilibrium.

“With births still happening and people still coming, 485 is an abnormally low number to meet household formation,” Paquin said.

“The level of activity is more abnormally low now than it was abnormally high during the boom years,” said Michael.

The new sales lows partially reflect a buyer population “shell-shocked” after 18 months of double-digit unemployment across the Sacramento region, Rogers said. Pending budget cuts by local and state governments add to consumer caution.

“Interest rates are staying low, but it’s not pushing people toward buying right away,” he said. “People are looking at values and seeing if they really are at the bottom or not.”

Nationally, mortgage rates have remained below 5 percent for nine weeks, according to federal mortgage giant Freddie Mac.

Builders of new homes must directly compete with thousands of discounted distress-sale properties. Those sales account for two-thirds of transactions in Sacramento County, the largest sector of the local market, according to La Jolla researcher MDA DataQuick.

Builders are faring better in areas with fewer foreclosures. Placer County accounted for half the quarter’s sales, Paquin said. He said 36 percent of the region’s sales were in Roseville alone. Also among stronger market segments: houses in age-restricted communities.

Cady said sales to people 55 and older have picked up as the existing-home market rebounds. That’s enabling them to move out of their long-owned houses.

“The fact that they’ve been able to sell those houses sooner has been a positive for our Del Webb business,” he said.

The region’s second-quarter median price of $323,000 for a new home was down almost 5 percent from the first quarter. Prices were also down 3.4 percent from a year earlier.

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NEW YORK (CNNMoney.com) — As the nation struggles to shrug off the worst housing crash since the Great Depression, it may be hard to believe a housing shortage could be on its way.

The nation is simply not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, an annualized rate and less than half the long-term run rate needed to meet the nation’s natural population growth.

So far, the shortfall has been masked by a weak economy that has put a damper on home buying. Once the job market rebounds, however, people will look to have their own homes again. This pent-up demand could get unleashed on unprepared markets, causing shortages and rising local prices.

Household formation — the technical term for people moving in together — has been on hold during the past few years as young people, especially, have been unable to find jobs. In the past, an average of more than 1.3 million households were formed each year, causing demand for 1.5 million new homes. (More homes than households are needed to replace those destroyed by fires, floods, teardowns and neglect.)

In 2009, only 398,000 new households were formed, according to the Census Bureau. That is much lower than average and a quarter of the number formed just two years earlier.

“The decline in household formation is artificial,” said Gaines. “The young are moving in with their parents. There’s even doubling up among working class people. There’s a pent-up demand coming if and when the economy recovers.”

Those doubting a new bubble is near point to a large inventory overhang. As many as 7 million homes are vacant but not for sale, according to the Census Bureau, which should provide cushion to offset increased demand.

“The housing market hasn’t been this way before,” said Nicolas Retsinas, director of Harvard’s Joint Center for Housing Studies. “The gravity of the problem is deeper and the challenges different. You have to get through that inventory.” The inventory number, however, can be deceiving for two reasons: People may not want to live in hard-hit areas where the houses are (think: California exurbs and Detroit neighborhoods) or the homes may be beyond repair.

“Many of these vacant homes may not be habitable or are in locations where nobody wants to live,” Gaines said.

Ordinarily, the nation’s homebuilders can react quickly to meet surges in demand. But several factors are preventing them from being nimble. The biggest is the difficulty getting loans, according to Jerry Howard, CEO of the National Association of Home Builders (NAHB).

“When we came out of past recessions, there wasn’t the difficulty of obtaining financing that there is now,” he said.

Many small builders have been unable to obtain construction loans or lost their financing in mid-project. That has prodded NAHB to support federal legislation that would make $15 billion in lending guarantees available for private builders.

Hard times also persuaded builders to postpone purchases of land they could prep for future development. It will take them that much longer to gear up production once the housing market improves.

Too, many builders went out of business in the bust, so there will be fewer companies out there to do the building. The survivors will confront a transformed regulatory environment, according to Howard, that will make new homes harder to build and more expensive.

“There is an increased focus on smart growth that will create regulatory barriers to the kind of sprawling development that has characterized a lot of recent building,” said Retsinas.

The regulations come under two categories, according to Susan Asmus, NAHB’s senior vice president for advocacy, covering where new homes are built and how they’re built.

One category is storm water runoff. The Environmental Protection Agency tightened requirement governing how builders handle that. Builders will have to install controls such as catchments or retaining ponds that slow the flow of storm runoff into the local watersheds.

“It could add as much as $15,000 to $30,000 an acre in extra costs, depending on the soil,” said Asmus.

Another proposed regulation mandates sprinkler systems in each new home. This is already state law, starting January 2011, in California, Maryland and New Jersey. That adds as much as $10,000 to the cost of construction.

Previous overbuilding one-time boom towns, such as Las Vegas and Miami, should provide enough inventory of like-new homes to counter any strong pent-up demand that breaks free.

It’s the more constrained markets, where it’s particularly hard to build — such as New York, San Francisco and Seattle — that will field the bulk of the new bubble problems, according to Retsinas. He, however, is less worried about the purchase market than about rentals, the usual entree for the young buyers expected to lead the new housing market charge.

“Nobody is building any rental inventory,” said Retsinas. 

We’ve been flooded with queries about this one ever since the health care bill became law. At the last minute, Democratic lawmakers decided on a new 3.8 percent tax on the net investment income of high-income persons. But the claim that this would amount to a $15,200 tax on the sale of a typical $400,000 home is utterly false.

The truth is that only a tiny percentage of home sellers will pay the tax. First of all, only those with incomes over $200,000 a year ($250,000 for married couples filing jointly) will be subject to it. And even for those who have such high incomes, the tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home.

We can understand how this misconception got started. The law itself is couched in highly technical language that only a qualified tax expert can fully grasp. (This provision begins on page 33 of the reconciliation bill that was passed and signed into law.) And it does say the tax falls on “net gain … attributable to the disposition of property.” That would include the sale of a home. But the bill also says the tax falls only on that portion of any gain that is “taken into account in computing taxable income” under the existing tax code. And the fact is, the first $250,000 in profit on the sale of a primary residence (or $500,000 in the case of a married couple) is excluded from taxable income already. (That exclusion doesn’t apply to vacation homes or rental properties.)

The Joint Committee on Taxation, the group of nonpartisan tax experts that Congress relies on to analyze tax proposals, underscores this in a footnote on page 139 of its report on the bill. The note states: “Gross income does not include … excluded gain from the sale of a principal residence.”

And just to be sure, we checked with William Ahern, director of policy and communications for the nonprofit, pro-business Tax Foundation. “Some home sales would see a tax increase under this bill,” Ahern told us, “but it would have to be a second home or a principal residence generating [a gain of] more than $250,000 ($500,000 for a couple).”

So there you have it. The sort of people who would have to pay the tax might include, for example:

• A single executive making $210,000 a year who sells his $300,000 ski condo for a $50,000 profit. His tax on the sale of that vacation home would amount to $1,900, in addition to the capital gains tax he would have paid anyway.
• An “empty nester” couple with combined income of over $250,000 a year who sell their $1 million primary residence to move to smaller quarters. If they cleared $600,000 on the sale, they would be taxed on $100,000 of the profit (the amount over the half-million-dollar exclusion). Their health care tax on the sale would amount to $3,800 over and above the usual capital gains levy.

However, a typical home sale would not incur any tax. In March, for example, half of all existing homes sold for $170,700 or less, according to the National Association of Realtors. Obviously, none of those sales could possibly generate a $250,000 profit, and so none would be subject to the tax.

Thus, for the vast majority, the 3.8 percent tax won’t apply. The Tax Foundation, in a report released April 15, said the new tax on investment income (including real estate) “will hit approximately the top-earning two percent of families” when it takes effect in 2013.

Footnote: Some of the chain e-mails that claim ordinary home sales will be taxed include a copy of an article written by Paul Guppy, a policy analyst with the conservative Washington Policy Institute (that’s Washington state, not Washington, D.C.). The article appeared March 28 as an op-ed in the Spokane, Wash., Spokesman-Review, and Guppy claimed that “[m]iddle-income people must pay the full tax even if they are ‘rich’ for only one day.” That brought a quick rebuttal from Sara Orrange, the government affairs director of the local Realtors association. She wrote a letter to the newspaper calling Guppy’s article “inaccurate” and saying, “Most people who sell their homes will not be impacted by these new regulations. This is not a new tax on every seller, and that correction needs to be made.” In a news article the next day, business reporter Bert Caldwell confirmed that only “a very few” home sellers would pay the 3.8 percent tax.

The Internal Revenue Service says that to qualify for the $250,000/$500,000 exclusion, a seller must have owned the home and lived there as the seller’s “main home” for at least two years out of the five years prior to the sale.

– Brooks Jackson

Sources

Joint Committee on Taxation. “Technical Explanation of the Revenue Provisions of the ‘Reconciliation Act of 2010,’ As Amended, In Combination with the ‘Patient Protection and Affordable Care Act.’” 21 Mar 2010.

Ahern, William. E-mail to FactCheck.org, 22 Apr 2010.

National Association of Realtors. ”Existing-Home Sales Rise on Home Buyer Tax Credit and Favorable Market Conditions.” Press release. 22 Apr 2010.

Fleenor, Patrick and Gerald Prante. “Health Care Reform: How Much Does It Redistribute Income?” The Tax Foundation. 15 Apr 2010.

Guppy, Paul. “Health Law’s Heavy Impact.” Spokesman-Review. 28 Mar 2010.

Orrange, Sara. “Home sales tax clarified.” Letter. Spokesman-Review. 1 Apr 2010.

Caldwell, Bert. “Realtors take aim at health care tax claim.” Spokesman-Review. 4 Apr 2010. 

Housing starts jumped sharply last month in California and Sacramento from a year earlier, an industry association said Wednesday.

But the California Building Industry Association, which released the statistics, said the increased activity in January might not mean much.

“Given the fact that we’re comparing this month to one of the lowest months on record doesn’t exactly bring a housing recovery to mind,” said association President Liz Snow in a press release. “Still, it’s nice to see some increase in homebuilding activity.”

Some 2,979 housing permits were pulled statewide in January, up 48 percent from a year earlier but down 18 percent from December.

In the Sacramento region, 211 permits were pulled in January. That was up 41 percent from a year earlier. It was also an increase of 23 percent over December.

The figures were a far cry from the boom era. In January 2006, for instance, 707 housing permits were pulled in Sacramento.

Sacramento had a median gain last year.

New December statistics paint 2009 as the year when Sacramento County home prices finally ended a dramatic four-year free fall.

Median sales prices for new and existing homes combined rose 0.6 percent in 2009, property researcher MDA DataQuick reported Thursday. The percentage represents a welcome change for thousands of anxious Sacramento County homeowners who saw their values drop 20 percent in 2007 and plunge another 37 percent in 2008.

The newest numbers reveal a 2009 real estate market prodded by government stimulus, more than five months of interest rates below 5 percent and plenty of cheap bank repos in its early months. The year also brought an $8,000 first-time homebuyer federal tax credit and several months of a similar $10,000 state tax credit for buyers of new houses.

Prices for Sacramento County resale homes alone closed at $178,000 for the year, up 2.4 percent from the start of 2009, DataQuick reported. It was a second straight month to beat the previous year – after 41 months of annual losses.

“That’s probably because of the slowdown in (bank repo) sales,” said Bob Bronswick, Roseville-based president and chief operating officer of Coldwell Banker Residential Brokerage. “And if you look at it, our primary market is entry level. There’s been such demand for it, and prices over the asking price. We’ve garnered a lot of multiple offers.”

DataQuick analyst Andrew LePage said Sacramento County sales under $100,000 fell from a year earlier while rising slightly in the $500,000 and $800,000 categories.

The reversal of a long downward trend in prices appeared inside a December report showing that capital-area homeowners closed 40,534 escrows in 2009. The tally was 496 escrows shy of 2008 in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, DataQuick reported. While robust for a market pocked with foreclosures, job cuts and anxiety, the annual total was one of the lowest since 1998, DataQuick records show.

“Everything I have in escrow right now is a short sale,” said Roseville-based ReMax real estate agent Jaye Crews. Those are sales, increasingly common in distressed newer neighborhoods, in which banks accept offers below what they’re owed. For Crews, short sales and first-time buyers have largely taken the place of her earlier bread and butter – move-up buyers.

The Sacramento Association of Realtors says one in four December sales in Sacramento County and West Sacramento were short sales. DataQuick said Thursday that 50.6 percent of Sacramento County sales were bank repos. That’s down from 71 percent as 2009 opened.

This continued prevalence of short sales and repos shows that the market – while it’s more stable – is still not normal. Collectively, Sacramento, Yolo, Placer and El Dorado counties remain mired in 12.4 percent unemployment.

As 2010 begins, almost 12 percent of the four-county region’s mortgages are late, in the foreclosure process or tied to bank-owned homes, according to First American CoreLogic. That’s a sizable increase from 7 percent at the beginning of 2009, when unemployment was 8.7 percent.

DataQuick reported that 3,450 new and existing homes changed hands in December in the eight-county region, beating 3,183 sales in November. December sales normally rise from November.

While prices have largely stabilized in Sacramento County they’re still under pressure in Placer County, where homes are more expensive. Prices in Placer County finished 2009 down 13.6 percent.

“A lot of stuff is still highly discounted in Lincoln Hills,” said Crews. “We’re definitely seeing stability in markets and places where there aren’t a lot of houses for sale. But, boy, in those new-home tracts even six or seven years old. Ouch.”

With so many newer houses being resold, new homes accounted for just 9 percent of capital-area sales in 2009. That’s down from 25 percent market share in the boom that spanned 2002 to 2006.

Many in real estate circles believe 2010 will proceed with less artificial stimulus. The federal tax credit expires at the end of April. And Wednesday, the Federal Home Administration, which insures many first-time buyer loans, announced it will charge higher fees and require higher down payments from buyers with credit scores below 580. At least 40 percent of Sacramento-area loans in 2009 were FHA loans.

Opponents, who include economists and advocacy groups, are weighing in. Their point: it’s a poor use of money in a state that’s whacking community college budgets and health programs for poor kids.

“The experts have all concluded that (credits) are ineffective and largely reward people for homes they would have bought anyhow,” said Jean Ross, head of the California Budget Project, a policy advocate for lower-income residents.

Wednesday, Los Angeles economist Chris Thornberg said the federal $8,000 tax credit is stimulus enough for the California housing market. Thursday, economist Jeff Michael, director of the Business Forecasting Center at Stockton’s University of the Pacific, said he agreed.

Many think the proposal’s popularity with buyers, builders and real estate agents will carry the day. But with deficits still raging, this may be a big fight.

High-performing market

Finally. Sacramento makes a Top 15 list that isn’t about complete dismal failings in its housing market.

Truckee-based Clear Capital this week ranked the metro area 14th nationally among its “highest performing major markets” from Nov. 25 to Dec. 24. These are the veteran hard-hit markets where prices are finally rising now – Detroit, San Francisco, Phoenix, Tampa, San Jose and Sacramento.

Clear Capital shows that prices in El Dorado, Placer, Sacramento and Yolo counties rose 2.7 percent from the third quarter to the fourth – nearly erasing all of 2009’s previous declines. The year here ended with prices down just 0.9 percent from December 2008, it said.

Much credit goes to far fewer cheap repos in the capital region’s sales mix: 38.3 percent at year’s end.

Three comparisons:

• Riverside-San Bernardino’s repo share is 53 percent. Its sales prices are 13 percent below December 2008.

• Phoenix repos are 47 percent of home sales. The year ended with prices 19 percent below December 2008.

• Las Vegas is mired in a 53 percent repo share. As a result, sale prices are 27 percent below December 2008.

Goodbye, big spenders

No wonder this economy feels so slow. Construction workers, who never let a dollar sit in their pockets for long, aren’t earning any.

Sacramento lost 23 percent of its nonresidential construction jobs in the past year. Count 12,500 jobs gone, says trade group Associated General Contractors.

Sacramento ranked 321st among 337 U.S. metro areas for its losses. That’s very bad. And it’s after the region’s home-building industry shed 70 percent of its jobs.

A buyer’s happy ending

It never gets old to hear a first-time buyer’s happiness upon finally scoring after the long, hard search.

This week, Laurel Bane of Sacramento checked in – merrily – after seeing her August frustration replayed in a Bee New Year’s retrospective on the 2009 market.

“Now that I have lived in my brand new model home with designer window coverings, warm paint colors and classic upgraded finishes, I look back on my journey and feel grateful,” she writes.

Late in 2009 Bane bought a model home in Natomas, built by Orange County’s John Laing Homes before its collapse. The seller, she said, was federal mortgage giant Freddie Mac.

When Home Front talked with Bane last summer, she described a “bidding war hell.” She said she’d made six offers since March – and lost every one. “Everything I find is sold within the day.”

This week she shared her happier story to “let others know that the light at the end of the tunnel may brighten with time.”

For the first time, the tax credit program would also enable many homeowners who buy a new primary residence to receive a $6,500 refund.

The measure was attached to a bill that would provide 20 weeks of unemployment benefits in more than two dozen states with jobless rates above 8.5 percent and up to 14 weeks elsewhere. Another provision in the bill would allow businesses that had operating losses in 2008 and 2009 to seek refunds for taxes paid on profits over the past five years.

The bill, which passed 98 to 0, should reach the House floor by Thursday, House Majority Leader Steny H. Hoyer (D-Md.) said in a statement. His office said the legislation would then go to the White House for the president’s signature.

The Obama administration has previously supported extending the $8,000 tax credit, and without congressional action the program would end Nov. 30.

Under the bill, first-time home buyers would receive the $8,000 tax credit if they sign a contract by April 30 and close on it by June 30. The plan would also make those who buy a new primary residence eligible for the $6,500 credit if they owned their current home for at least five consecutive years in the previous eight years.

But the measure limits the purchase price of the home to $800,000. It also imposes income caps so that people who make more than $125,000 annually and couples who make more than $225,000 would not be eligible for the program, which is estimated to cost $10 billion.

Sen. Johnny Isakson (R-Ga.), a longtime advocate of the tax credit, praised passage of the bill in his chamber but said the extension would be the last one. “Tax credits like this only work by creating the sense of urgency to take advantage of them,” Isakson said in a statement.

The tax credit and the broader bill in which it is included are part of a series of Democratic-led initiatives aimed at helping the economy and people who have lost their jobs.

The unemployment benefits of more than 1 million people would lapse without this extension, according to the National Employment Law Project, a nonpartisan group that tracks the issue. More than 15 million Americans are unemployed, more than a third of them for longer than six months.

Although the legislation gained wide bipartisan support, it had been mired in bickering for weeks as Republicans tried to attach amendments that Democrats opposed. Party leaders from both sides voiced support for the core measures, including the tax credit.

Supporters of the tax credit, including the real estate industry, say it has energized home buyers and helped increase sales. But critics say the program is too expensive and has attracted mainly people who were going to buy a home anyway.

In the Senate’s measure, taxpayers would be able to claim the credit on their 2009 income tax return for purchases made in 2010.

Staff writer Perry Bacon Jr. contributed to this report also.