Don't Let the Drought Dry Up Your Sales | John Burns Real Estate Consulting

Don’t Let the Drought Dry Up Your Sales


When shopping for a new home, buyers have a new concern to add to their list:

  • How are the schools?
  • Is the area nice?
  • Is there retail nearby?
  • Will I have water?

Maybe.

Water has become the issue du jour in California. In the new home world, water is changing how we do business. Homes are becoming more water efficient and communities less water reliant. Here we tackle the issue of sales. Can the drought have a real impact on new home sales?

Fortunately—or unfortunately, depending on your point of view—we have a recent test case to examine this. Mountain House is the 35th-largest masterplan in the country, located in the City of Tracy, just across the Alameda County line, and fueled by strong San Francisco Bay Area demand. Mountain House is an attractive community with excellent sales in the last few years.

Then the local media began reporting the Great Mountain House Water Scare of 2015. The local water agency that supplied Mountain House was going to be forced to cut back due to new state restrictions and could only guarantee water for Mountain House for another week. Cue imagery of dry taps and dead lawns.

The potential impact of this mini media buzz was obvious—would this story quash sales at Mountain House due to home buyer worries about water? This was not just green lawns and blue pools. It was bathing and drinking.

The table below displays Mountain House and City of Tracy net sales for the three weeks prior to this story and the three weeks after. Many buyers shopping Mountain House, we surmised, might conflate the two communities and believe a similar waterless fate hung over Tracy too in a kind of guilt-by-association effect. Lastly, we show data for River Islands, a new masterplan in nearby Lathrop that approximates the appeal of Mountain House and has sold more than 200 homes in the last year. The River Islands data are included to test whether or not any sales impact was due to normal seasonality.

New Home Sales Pre- and Post-Water Story

drought

The results are clear. Mountain House was hammered by the water scare. Sales dropped 70% in the immediate period after the water scare story, while sales in Tracy decreased almost as much. Meanwhile, sales at River Islands dropped only marginally, and most likely due to seasonality than due to water. Discussions with sales agents at a variety of these neighborhoods indicate that at both Mountain House and Tracy buyers expressed concerns about the water situation. Though many of these agents did not believe water was the overwhelming issue, the data speak otherwise.

The good news is the impact seems to already be dissipating. The state has backed off some of its potential restrictions, and Mountain House developers have, at least for the near-term, secured a water supply. Pricing has remained stable.

Still, some damage, however temporary, has been done. The thought is now in the heads’ of prospective home buyers—if I buy at Mountain House can I be sure I will have water? While most developers have a reasonably certain water supply, this psychology is concerning. Such an event can happen anywhere in California, and even the hint of water insecurity could have an impact. A prolonged event would undoubtedly slow pricing as well as sales.

So, what do we do?

  • Lock down water rights. Fairfield, a community in the Bay Area, recently trumpeted its relatively plentiful water supply. Water should be one of the first due diligence questions.
  • Train on water. Buyers will be suspicious if the water issue becomes particularly buzzworthy in your area. Train staff to be ready for water questions. While the drought is regional, access to water is very local.
  • Market water. Understand that water is as important as price and schools and product. This means you can market your water rights—“We have water!” Since almost all new homes are more water efficient than resales, market lower water bills just like you would lower energy bills for energy-efficient homes. Maybe even “go on the offensive” by reminding buyers that new homes are far more water efficient than resale homes.

The longer the drought lasts, the greater the chance of further water insecurity. For a copy of our paper on the California drought or consulting assistance, contact Dean Wehrli, our Northern California Consulting Senior Vice President with 16 years of market research consulting experience.

 


Dean Wehrli If you have any questions, please contact Dean Wehrli at (916) 647-3263 or by email.

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