Houses Getting Cheaper
Much cheaper, it seems: "Housing developers are drastically cutting prices to move a backlog of unsold homes off the market, according to new statistics released today by the Commerce Department. The median sale price of a new home in September 2006 was $217,000, 9.7 percent lower than in September 2005, the report said — the steepest year-to-year drop in more than three decades."
Is that a nominal number or a real one? At any rate, sales went way up and inventories declined as a result of the reduced prices, so that doesn't sound to me quite like the tailspin of doom some were foreseeing but the Commerce Department still has a fairly large number of unsold homes (6+ months worth) lying around, so we haven't seen the end of things yet. But how big a proportion of the market are new homes anyway?
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But how big a proportion of the market are new homes anyway?
Depends entirely on the market Matthew. In old established eastern cities like Washington, Boston, New York etc. they are a relatively small portion of the market because the urban areas are already so developed and you have to go far to far to find large swaths of undeveloped land for new subdivisions.
In relatively new and fast growing sunbelt cities like Phoenix, Las Vegas, Dallas, Houston, and Atlanta new construction can be a major component of the market because in those cities all the action is in the suburbs and everyone expects to buy a new home not some skanky 'used' home that someone else has actually lived in.
The place to go to for all your housing bubble info is the the Housing Bubble Blog
http://thehousingbubbleblog.com/
but the Commerce Department still has a fairly large number of unsold homes (6+ months worth) lying around
Goodness, where are they keeping them all? I mean, I know it's a big federal office building, but it's not that big!
But the new home sales are normally big tracts of development that rely on borrowed money or public financing through stock sales, which will cause the price per share to drop. The debt problem is the classic situation where you see the snowball effect of the precipitous drop in price. Also, to the extent that the public companies borrowed heavily, then you have the same problem.
"In relatively new and fast growing sunbelt cities like Phoenix, Las Vegas, Dallas, Houston, and Atlanta new construction can be a major component of the market because in those cities all the action is in the suburbs and everyone expects to buy a new home not some skanky 'used' home that someone else has actually lived in."
Yeah. That, and there doesn't seem to be a large pool of potential buyers waiting for the prices to come down; ownership rates are sigificant in the boomtowns.
On the other hand, the prices may not come down enough to afford the large pool of renters in major metro areas the possibility of home ownership. You have a situation in places like San Francisco and Los Angeles where some overextended upper middle class people may lose their homes, but the only people who benefit are predatory buyers looking for a bargain. If anything, there still needs be a major building boom in some (mostly blue state) urban and inner suburban areas.
Not sure if this is a real question since the answers are so readly available, but new homes make up about 1/6th of the housing market.
Single-Family Homes
Sept Existing Home Sales: 5.42M (SAAR)
Sept New Home Sales: 1.08M (SAAR)
Since the seasonal adjustment factors can be kinda screwy, here's full-year (2005) data:
Existing: 6.179M
New: 1.283M
Both markets have double-digit yr/yr declines in volume. Existing sales are down 13.8%, new sales down 14.2%. Prices for existing are down 2.5% but the number on the market has increased 54.3%. Prices for new homes are down 9.7% but that has kept yr/yr inventory growth to 33%.
It's not a pretty picture any way you look at it, and the fear is that the price collapse in new homes is inevitable in existing homes once sellers finally realize that their homes are not worth as much as they'd thought.
Around cyclical turning points the average price of new homes is pretty much a useless stat. This is because the data
is often distorted by builders dropping out of the low end of the market first. But this time the drop appears to stem much more from a change in the composition of sales. If you look at the sales data by region you find that home prices in each of the regions actually rose. But because of a sharp increase in the sale of homes in the south -- where they are cheaper -- the average price fell.
"Doom . . ."
"Not a pretty picture . . ."
Everybody here obviously owns a home already, or is so loaded that a home could be bought but you just don't want one.
For those of us who have been despairing of ever buying a home (in most places in the Northeast you need an income of $200,000 to buy a home without having to rent half of it out), this long-awaited housing drop is GOOD NEWS.
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