Ryness sees challenges, opportunities in 2010 market
Run Date: January 17, 2010
San Jose Mercury News
Gary Ryness, a veteran of more than forty years in the homebuilding industry and Chairman of The Ryness Company, sees California’s housing market as providing both challenges and opportunities for buyers of new homes in 2010. However, homebuyers must continue to sift through a barrage of misinformation about the housing market in order to make an informed buying decision that best fits their particular situation.
“The truth is, new home prices (on a net basis after concessions) rose throughout the second half of 2009,” said Ryness, whose company issues the industry’s must-read weekly Ryness Report which tracks new home sales activities throughout California and other western states. “We reached the bottom over six months ago, yet people do not seem to know or believe that. Existing home prices continue to bounce around, but the impact they have on new home prices is negligible.”
Ryness sees a market correction coming in 2010. “As we run out of new homes to sell, they are currently not being replaced,” continued Ryness, who started his career in homebuilding in 1968. “The new home inventory is being steadily depleted because new homes are still selling well below replacement cost. For there to be enough new home starts to meet the demand in Northern California, prices will likely need to rise another 10% to 20% from their current levels. Until that happens there will be very few new home starts even if all the current inventory disappears.”
New home prices reacted about 6 months to a year before existing home prices adjusted, says Ryness. “From the peak in 2005-06, many parts of the San Francisco Bay Area saw new home prices drop up to 45%. In Sacramento and the Central Valley, the drop was even steeper. On the Peninsula and within the San Francisco and San Jose city limits, prices fell less.”
Ryness continues, “News coverage in the press and on radio/TV primarily focuses on existing home prices, much more so than new home prices. But it’s important to separate the two and people should be aware of that distinction. In a well-performing market, new home sales usually make up no more than 20% of overall sales. That figure can be less than 10% in down market periods.”
Ryness was asked if there was a “buy point” where falling home prices intersect with rising mortgage rates, causing the on-the-fence homebuyer to take action. “The ‘buy point’ has already passed. Waiting for new home prices to fall and mortgage rates to fall further isn’t an effective strategy.”
For more information visit www.ryness.com.
