Feb. 29 (Bloomberg) — When Quinn Cuthbertson looks around his new neighborhood in El Dorado Hills, California, he sees rows of empty homes and barren hillsides. A promised new school and a clubhouse haven’t materialized.
Cuthbertson paid $460,000 for a four-bedroom house in this northern California town named for the mythical golden city. He now suspects his neighbor spent $45,000 less. Nearby, 87 of 98 Toll Brothers Inc. home sites are undeveloped.
Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University’s Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report.
“Half-filled developments are an advertisement for a failing housing market,” said Retsinas, a former assistant secretary for housing at the U.S. Department of Housing and Urban Development. “It also has a spillover effect on the surrounding community.”
About 370,000 new homes are for sale because people who initially contracted to buy them backed out, according to estimates in a Feb. 15 report from analysts at New York-based CreditSights Inc. An additional 216,000 homes are under construction, according to Commerce Department data.
In January 1973, the number of finished new homes for sale was 97,000, when the U.S. population was about 212 million, according to the U.S. Census Bureau. In December 2007, 197,000 completed homes were on the market and in January 2008 there were 195,000. The current population is 303.5 million.
Home prices may fall at least 8 percent nationwide and by as much as 26 percent from the third quarter of 2007 before hitting bottom, according to a Feb. 13 report from New York- based Deutsche Bank AG analyst Karen Weaver, the firm’s global head of securitization research.
El Dorado Hills and the nearby towns of Bass Lake and Cameron Park started growing in the mid-1990s as Californians sought out new suburbs within commuting distance of Sacramento, the state capital. El Dorado Hills is about 30 miles east of Sacramento and used to be known as just a bus stop between the San Francisco Bay Area and Lake Tahoe resorts.
El Dorado’s Growth
“Thirty years ago, El Dorado Hills was a Raley’s and a 76 gas station, and some homes off in the hills,” said Mike Applegarth, a senior administrative analyst in the El Dorado County chief administrative office. Raley’s is a grocery store chain based in West Sacramento, California.
Today the town has a Target Corp. store, a Mercedes-Benz dealership and a Regal Cinemas with 14 screens, Applegarth said.
Most of the community’s growth came in the late 1990s when the El Dorado County Board of Supervisors gave approval for construction of 11,598 homes as part of five development agreements, said Laura Gill, the county’s chief administrative officer.
Lennar Corp., Centex Corp., Cambridge Homes and Parkland Homes plan to build 1,500 houses on 990 acres in El Dorado Hills in the Blackstone El Dorado development south of Highway 50, according to the project’s Web site. So far, Centex has built 30 of the 105 houses it plans to construct there, said salesman Bob DeWitt.
Building permits in El Dorado County are estimated to drop to $3.5 million in the fiscal year ending June 30, from a peak of $5.7 million in fiscal 2004, Gill said.
In Yorkville, Illinois, a town 55 miles southwest of Chicago, residential building permits fell 47 percent in 2007 from the year earlier.
In El Dorado Hills, Cuthbertson, a California Highway Patrol officer who has two sons ages 4 and 6, plans to stay in the area, and says he can afford to wait for prices to recover.
“We’ll wait to see what the neighborhood will be like,” Cuthbertson said. “We know prices might be going down, but in five years we’ll be OK.”
Homebuilders can’t wait. They’re cutting prices even further than last year and some are courting real estate brokers and using auctions to get rid of homes. They usually rely on their own staff to sell properties.
“It’s a desire for the companies to do whatever is necessary to retrench and put themselves in a position to succeed when the residential markets turn more favorable,” said Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Virginia.
The five largest U.S. builders had almost 8,900 completed homes for sale at the end of their most recent quarters, according to data compiled by Bloomberg.
D.R. Horton Inc., the second-biggest U.S. builder, held an “UnAuction” on Feb. 16 and Feb. 23 with prices cut as much as 50 percent at 23 developments in Southern California.
Pacific West Cos., a Reno, Nevada-based builder, said this month that it’s offering a “risk free” price guarantee to buyers in its California communities, including El Dorado Hills. If a similar property in the same development sells for less than a homeowner paid, the company will refund the difference.
`Element of Fear’
“We’re taking the element of fear away,” said Taylor Cohee, Pacific West’s vice president of sales.
Builders such as Los Angeles-based KB Home and D.R. Horton of Fort Worth, Texas, are seeking out real estate agents to bring buyers to developments, said Joellen Chappell, sales manager at Century 21 M&M and Associates in Stockton, California. Century 21 realtors are now getting commissions of as much as 4 percent for a sale.
“They’re bribing us with bonuses,” Chappell said.
Stockton’s metropolitan area had the second highest foreclosure rate in the U.S. last year and again in January. Almost 5 percent of households in that community were in some stage of foreclosure in 2007, according to RealtyTrac Inc., an Irvine, California-based seller of foreclosure data.
At least 14 new-home auctions are scheduled through April in California, Florida, Illinois, Arizona and Nevada, said Brigitte Boudress, a Beverly Hills, California-based spokeswoman for Kennedy Wilson Inc.
“The builders are looking for ways to accelerate sales and get inventory moving,” said Marty Clouser, senior vice president at Kennedy Wilson. The company auctioned 450 properties last year for $170 million at prices 85 percent to 90 percent less than the homes’ listings, Clouser said.
The decline in housing values is reducing the amount of revenue that counties make from property taxes, said Jacqueline Byers, director of research and outreach with the National Association of Counties in Washington. In states like California that require builders to use sales proceeds to pay for streets, fire stations and schools, that means slower development.
Brent Sease, who bought a five-bedroom home built by Miami- based Lennar in El Dorado Hills, said a park and school that were supposed to be constructed are at least two years from being completed. Across the street, red tags that say “Available” are pasted on two houses.
“That’s the thing I’m concerned about,” said Sease, a software manager with three daughters. “It’s going to be a while before they put all that in, because they’re not selling homes.”