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New homes showing signs of market life

By Justin Hunter

The housing market has been producing nothing but negative news lately for current home builders, owners and sellers. The booming period from 2000 to 2005 spoiled owners as home values appreciated two, three and sometimes four times what they originally paid for it just a few years prior.

As buyers took a stand, realizing that the prices were getting out of control and appreciating much high than economic inflation rates, sales stopped and prices began to wane.

Existing homes have generated record sales decreases in major markets such as California. But according to the article, “U.S. Economy: September New-Home Sales Unexpectedly Increase,” written by Bob Willis and Joe Richter and posted on the October 26, 2006 edition of Bloomberg.com, there is finally some positive news for home builders as new home sales actually increased in September.

“New-home sales in the U.S. unexpectedly rose for a second month in September as builders focused on meeting demand for cheaper homes.”

“Purchases increased 5.3 percent to an annual pace of 1.075 million, the Commerce Department said today in Washington. A surge in demand for dwellings in the $150,000-to-$200,000 range drove the median price of a new home down 9.7 percent from a year ago, the most since 1970.”

The report suggests that builders have figured out a sure-fire way to prevent the overall housing market from slumping deeper. As interest rates have lowered in recent months, builders have reduced asking prices on new homes in hopes of out-witting the existing home market. It appears to be working.

“The median price of a new home declined to $217,100 in September from $240,400 a year earlier, today's report showed. It was the biggest decrease since an 11.2 percent year-over-year drop in December 1970, the Commerce Department said. The median price was the lowest since $211,600 in September 2004.”

Just as big of news story is the fact the inventories have also reportedly declined. A major market buster so far this year has been that inventories (available homes for sale) have far outweighed the demand.

“The number of homes for sale dropped to a seasonally adjusted 557,000 during the month, the lowest since March. The supply of homes at the current sales rate declined to 6.4 months’ worth from 6.8 months.”

However, existing homes appear to be stuck on the one-way track downhill as a report recently released by the National Association of Realtors (NAR) showed that previously owned homes declined last month to the lowest level in almost three years.

“The National Association of Realtors forecast a 17.3 percent drop in new-home sales this year to 1.06 million, still the fourth-highest on record.”

“Sales of new homes are still down 14 percent from the same time last year, the Commerce Department said.”

The only thing that matters for real estate investors is market direction. It is more about what will happen rather than what has happened.

Besides buyers still being in the market driver’s seat, new home builders seem to be the only other happy industry participants right now.

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