January 26, 2006

Home builders in California, had their best year in nearly 2 decades in 2005 selling 136,000 new houses and condominiums, data released this week. That was a 4.4% increase from the year before, according to real estate research firm to Dataquick information systems. It also was the highest number of new home sales since the La Jolla firm began keeping track in 1988.

In Southern California, new home sales last year rose 14.7% to 68,523. Sales have increased every year since 1995, when the region was emerging from a real estate downturn. Last month, sales of new homes in the region rose 22.6% year over year, while sales of existing homes declined nearly 10%.

Despite the strong month, there are growing indications that demand for new homes may be cooling. The number of permits issued for new home production in California declined in 2005 for the first time in a decade, and builders are not raising prices at the same pace as a year ago.

However, new home prices have shown little sign of softening, the median sale price of new homes rose 14% to $439,000 in California. The big reason prices still show as increasing is that builders don't reduce prices anymore. They simply offer incentives, such as discounting closing costs or interior design upgrades, to help close deals when demand cools.

Riverside County led the state in new home sales last year, accounting for about one in five new home sales. 2005 was the first year in the past few years, that supply approached the demand for new homes, according to Mark Boud an Orange County based economist and industry consultant.