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New homes sales: down, down, down


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March 26, 2007

New homes sales: down, down, down

Dean Foust

Remember a couple of months ago when homebuilders were citing home sales data as evidence that the housing downturn had bottomed and stabilized? So much for that. The Commerce Dept. reported earlier today that new homes sales fell sharply – and unexpectedly in February – dipping to their lowest level in almost seven years. Sales of single-family homes fell 3.9% to a seasonally adjusted annual rate of 848,000.

The poor housing report came as a shock to Wall Street, which was banking on a 6.7% increase in demand. Adding insult to injury, previously released estimates for November through January were revised down sharply, with the January level lowered by nearly 6% and the December level lowered by 6.8%. Stocks tumbled in response, particularly those of housing-related companies.

Though the depressing housing numbers might raise new concerns over whether the economy is headed into recession, don’t jump from the ledge just yet. Not that I’m arguing that the downturn is over and the good times will roll again pretty soon. It’s just that housing data is notoriously volatile on a month-to-month basis. It’s possible that the downturn was caused in part by the bitterly cold weather that many regions of the country suffered in January and February. And new homes only comprise roughly 15% of total home sales, and existing home sales are still rising (of course, some economists like Maury Harris at UBS warn that existing home sales data tend to lag new home sales data by about a month or two, since they are based on sales contract closings while new home sales data are based on initial signings).

One other point: some economists were struck by the disconnect between the homes sales data, which is down, and mortgage applications, which remain strong. Of course, it’s quite possible that there ARE a lot of mortgage applications, but that A NUMBER of those applications will be denied, as banks suddenly get tougher in their underwriting standards.

Another problem for sellers – be they homebuilders with new construction, or the owners of existing homes – is the growing inventory overhang. There were an estimated 546,000 new homes for sale at the end of February. At the current sales pace, that’s an 8.1 months’ supply – the highest supply since January 1991.

01:02 PM

New Home Sales

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It doesn't take a lot of thought to realize that the housing market is in real trouble. The number of affordable homes has seriously declined over the last 3-4 years. While experts provide a whole lot of statistics and financial advisors love to tell us that there's nothing to worry about, in reality, there is a lot to ponder. Middle and low-income prospective home buyers have been pushed out of the market. This is causing a serious social/psychological/emotional effect on Americans. Americans can no longer afford the "American Dream" because the housing market has abnormally driven up the prices of homes across the country. This negative socio-psychological effect will hurt Americans all across the country. What is the solution, you might ask - A serious correction in housing is required across the country. The correction is already happening but gradually and the housing downturn will continue until the average prospective homebuyer can realistically afford to buy a home in his/her own community. However, the housing downturn isn't occurring fast enough to relieve the build up of psychological and emotional distress that affects most Americans across the country.

Actually - it would be wonderful to see the homebuyer "community" across the country issue a moratorium on buying a home. Just for a month or two - that would really produce a jolt in the much needed housing correction.

Posted by: peter at March 26, 2007 01:16 PM

It doesn't take a lot of thought to realize that the housing market is in real trouble. The number of affordable homes has seriously declined over the last 3-4 years. While experts provide a whole lot of statistics and financial advisors love to tell us that there's nothing to worry about, in reality, there is a lot to ponder. Middle and low-income prospective home buyers have been pushed out of the market. This is causing a serious social/psychological/emotional effect on Americans. Americans can no longer afford the "American Dream" because the housing market has abnormally driven up the prices of homes across the country. This negative socio-psychological effect will hurt Americans all across the country. What is the solution, you might ask - A serious correction in housing is required across the country. The correction is already happening but gradually and the housing downturn will continue until the average prospective homebuyer can realistically afford to buy a home in his/her own community. However, the housing downturn isn't occurring fast enough to relieve the build up of psychological and emotional distress that affects most Americans across the country.

Actually - it would be wonderful to see the homebuyer "community" across the country issue a moratorium on buying a home. Just for a month or two - that would really produce a jolt in the much needed housing correction.

Posted by: peter at March 26, 2007 02:09 PM

One of the biggest problems with the current housing market is the supply of house on the market. You state in your article that it is at its highest point since January 1991. I think we all can remember that housing market. Times were different back then and the economy was in a recession. There are definitely some tough times ahead for the housing market, but if history is any indication we just have to wait this out. They will recover and when they do the people who rode the storm out will be the ones to benefit. Please don’t freak out and jump ship and start renting hoping to get top dollar for your property. You will only suffer in the end.

Posted by: Rocco at March 26, 2007 05:34 PM

I wonder if there is a national statistic on spec homes? I know we've been following that quite a bit in the Phoenix market - ie once the spec home inventory was burnt off, only then could the resale inventory be attacked.

Kaushik Sirkar, Chandler, AZ Realtor®

http://www.homesphx.com

http://www.activerain.com/blogs/ksirkar

Posted by: Kaushik Sirkar at March 29, 2007 04:01 AM

Existing homes have risen in sales for 3 consecutive months, and inventories are down to only 6 months which is normal. On the other hand, new homes have increased in inventory level and have slightly dropped. Why is that? What is different about new homes? Both of these are great for homeowners of existing homes.

The data now proves to you that people don't want to buy these new homes that are on postage-stamp-sized lots. No one wants a house on less than 5000 square feet. Citizens are revolting against the stupid developers who build 20 houses per acre. Land is scarce, yes. That is why existing homes are low inventory and getting lower. Price of land will likely double in the next 5 years. Millions of kids are born per year and they want backyards, front yards, etc. My city (due to smart citizens) won't allow a home to be built on less than 6000 ft2.

The subprime buzzword scrare tactic of the week is going the same way as the dodo bird. This technique is fizzling like out the the Y2K disaster. Only homes on less than 5000 sq ft lots are out of favor. Too many were built and developers miscalculated big time. Existing home sales have climbed in 3 of the past 3 months. Good homes with nice sized lots are scarce!

Ten's of thousands of Indians, Chinese and other Asians are coming in to my area every year. These people have money and are not going to be tricked by developers who continue to build on lots less than 5000 sq ft. There are almost no subprime loans here and inventory is half of what it was last year. Great time to own a home on more than 6000 sq ft lots!

Posted by: ralph salvatore at April 1, 2007 01:11 AM

See, I think it is the total opposite of what the majority of people might think about real estate market. Prices continue to fall because of sellers going it alone and agents who dont know how to negotiate. The Market really started to take a dip December 2005, we always wind down alot than due to being in the dead of winter and the holidays. For sale by owners averaging about 16% less than agent assisted sales "Realtor.com" ,coupled with the winter slow down, prices go downward. On the otherhand the majority of agents who cant negotiate, and are so quick to give up there clients money just to make a deal spells disaster for housing prices. Just remember and know how much your home is worth, be sure of it and stick to that price or somewhere near it when selling. Sometimes it might just be the wrong time for that home if it is not selling.

Posted by: RE/MAX Power Realtors: Mike Luchen at April 2, 2007 02:09 AM


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