New Home Sales Rise, While Prices Fall

Yesterday, the Census Bureau reported sales of new homes rose 2.7 percent in September, from a 17-year low in August, propelled by a 9.1 percent plunge in home prices.
Sales of new homes rose from an annualized, seasonally adjusted rate of 452,000 in August to 464,000 in September as builders became more aggressive in reducing prices amid stiff competition from foreclosure sales.

Distressed sales - foreclosures and short sales - have been supporting existing home sales all year with prices undercutting that of home builders and this has had a huge impact on new home sales.

From the peak in 2005, new home sales have declined 67 percent, while existing home sales have declined just 28 percent, more than one-third of existing home sales now counted as distressed sales.

The inventory of unsold new homes was reduced sharply, from 404,000 in August to 374,000 in September, but remains at historically high levels relative to sales. The months of supply metric fell from 11.4 months to 10.4 months, however, this is still about double the normal inventory-to-sales level.

The median price of a new home reached a four-year low at $218,400, down from $240,300 in September of 2007 with further price declines expected.

While sales of existing homes are reported after closing, new home sales are reported when contracts are signed, meaning that an unusually large number of new home sales reported in September may have difficulty in closing due to the worsening of credit market conditions and tighter lending standards.

Comments

[billddrummer:]

Another thing that's happening in the new home market is that some developers are slashing prices to raise cash. Land isn't selling at all, and some land-rich companies with standing inventory are looking to just liquidate their existing stock and try to hold on to their land holdings until the market improves.

But land has carrying costs that need to be paid for a period of time, years in some cases. Those builders need cash quickly to keep their land lenders happy, and dropping prices on standing inventory is one way to keep cash flowing in.

And there are more than a few distressed builders who are selling inventory that is the process of being seized by construction lenders.

In short, if a buyer has good credit, verifiable income and reserves, now is the time to deal on a new house.

2008 Oct 29 01:58 PM