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Price jump: It’s not much but it’s a start

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Price jump: It’s not much but it’s a start

Manteca builders started 30 new homes in April.

HIME ROMERO/The Bulletin


POSTED May 14, 2010 2:30 a.m.

It’s not exactly price creep but it is still an encouraging sign.

Several builders have upped the starting price for their lowest priced new homes over the past several months in Manteca.

Woodside Homes, as an example, lowest starting point was the $199,000 for the neighborhood in the triangle formed by Atherton Drive, Woodward Avenue and Van Ryn Avenue in southeast Manteca. Now the base prices start at $205,000.

The slight rise in new home prices is not reflective of price inflation or even equity gain, quite the contrary. Builders have been in cash flow mode for the past several years trying to juggle stranded assets - the investment in infrastructure for lots ready to build - and debt load to stay afloat and squeeze out a return.

Depending upon whether it is real profit or just retrieving money invested depends upon where they are in building out their particular subdivision and what write-offs they’ve been able to take.

The good news for the Manteca market is that it is on pace to repeat last year’s 308 new home sales. That may not sound like a lot compared to the heyday when over 1,000 homes were built in a single year, but it is substantially better than surrounding communities such as Modesto where they sold eight new homes in all of 2009.

The slight rise took place just after the Manteca market hit bottom for all practical purposes at the start of this year. Yes, there are still large homes that are dropping in price but things have pretty much stabilized on the bottom and in much of the middle for resales.

The magic number seems to be $185,000 in terms of the lowest the median price of resales will go in Manteca. The median had dipped below that for the past couple of weeks but that was due to a jump in sub-$150,000 homes hitting the market they were snapped up in days. Now the pending price of 231 homes in escrow is $190,000. At the rate deals are closing in Manteca that means sometime in the next eight to 10 weeks the median selling price will be almost $2,000 higher than it is today. Coming right behind it are 195 available homes with a median listing price of $205,950.

Given how the market has stabilized to a large degree on the bottom and mid-range priced homes, there are a few trends that are likely to take shape.

• Foreclosures will continue to hit the market. Banks are savvier with foreclosures and their balance sheets are getting strong enough that they can afford to continue to “trickle” them onto the market. Obviously, the banks and the financial system aren’t out of the woods yet but unless a financial tidal wave hits the banks it is significantly better than at this time last year. It is in the best interests of the banks and the country in general if indeed banks have come up with a strategy to ease foreclosed homes on to the market to basically replace homes that are sold so as not to build up an inventory and depress prices.

• Even if it takes a year or so more for foreclosures to work their way through the system, we’re still not going to see price pressures to any large degree. The reason is the pent up market for owners who aren’t in trouble who want to sell for various reasons.

• If interest rates starting climbing such as gaining a full point in a relatively short period of time - you will see buying activity pick up. That is based on observations in the past 30 years that when rates start climbing in earnest fence sitters jump off the wall in droves to buy. That said inertest rates and not home prices will eventually be the deal killer in real estate transactions.

• At some point in the next 18 months to three years it is possible to see a short surge in home prices due to many being sold below what it costs to build them from scratch. It won’t signal an overall rise in prices. Instead it will reflect supply finally getting at an equilibrium with demand. When new home sales start inching their way back up the undervalued resale market will respond accordingly. Once the value matches what it costs to build new, the market will hit another price plateau.

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