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HOME BUYING

New Home Sales Decline

Written By:
May 20, 2010 at 12:47 PM

According to the National Association of Homebuilders (NAHB), sales are falling for newly built, single-family homes. In February, they fell for the fourth consecutive month, dipping 2.2 percent to an all time low for the nation as a whole. Many blame poor weather for the problem, but consumer sentiment is another problem that continues to plague the market. The weak job market leaves buyers with little confidence in their ability to both qualify for a loan and to hold down a steady job to pay for the mortgage. Increasing foreclosure rates are also depressing the market, keeping home values low and the demand for new homes down.

Gains are expected soon, however, with the end of home buyer tax credit incentives on the horizon. There is also an expectation that pent-up demand, changes in household formations and low interest rates will spur sales. NAHB expects a 20 percent gain in new-home sales over 2009. But According to Bill Hampel, chief economist for the Credit Union National Association, “New home sales probably have until the fourth quarter until they start recovering.”

The Weather’s Effect on New Home Sales

Certain areas of the country were hit harder than others in February. In the sunny West, significant gains of 20.8 percent were seen. Where the weather was worst, in the Northeast, Midwest and South, losses were seen varying from 20 percent in the Northeast to, 18 percent in the Midwest and 4.6 percent in the south. These declines led to an increased inventory of new homes for sale, rising from January’s 8.9 to February’s 9.2. These numbers support the NAHB theory that weather played a strong role in declining new home sales.

Unemployment Factors

The lack of jobs continues to be a problem for the housing sector. Bloomberg expects joblessness to hover at about 9.6 percent through 2010. Without job security, consumer confidence to take on a mortgage is threatened and home sales cannot flourish. The NAHB indicates that each new home creates three jobs and adds approximately $90,000 in tax revenue. The trend of falling sales means fewer construction jobs will be created and towns will continue to be strapped for funds.

Competition with Foreclosed Homes

Despite new home sales losing to the combination of low priced foreclosures and low interest rates, the median price of a new home is rising. The average price of a new home rose to $220,500 (5.2 percent) in February, compared to the same time last year. The advance suggests a higher demand for new homes is on the horizon.

Further increases in foreclosures threaten the new home market as well. Hundreds of thousands of foreclosures are expected to hit the market in 2010. Mark Zandi of Moody’s Economy.com predicts foreclosures to increase from 1.7 million last year to 2.2 million this year. This leads many experts to believe home prices will fall again as larger numbers of foreclosed properties hit the market.

Reason for Optimism

Despite these concerns, some homebuilders are becoming optimistic. According to Lennar Corp., one of the country’s largest new home builders, new home orders are up by 18 percent, strongly correlating to NAHB’s prediction of a 20% increase in new home sales for 2010. The company also reports fewer cancellations from buyers since the previous quarter. According to the National Association of Homebuilders (NAHB), sales are falling for newly built, single-family homes. In February, they fell for the fourth consecutive month, dipping 2.2 percent to an all time low for the nation as a whole. Many blame poor weather for the problem, but consumer sentiment is another problem that continues to plague the market. The weak job market leaves buyers with little confidence in their ability to both qualify for a loan and to hold down a steady job to pay for the mortgage. Increasing foreclosure rates are also depressing the market, keeping home values low and the demand for new homes down.

Gains are expected soon, however, with the end of home buyer tax credit incentives on the horizon. There is also an expectation that pent-up demand, changes in household formations and low interest rates will spur sales. NAHB expects a 20 percent gain in new-home sales over 2009. But According to Bill Hampel, chief economist for the Credit Union National Association, “New home sales probably have until the fourth quarter until they start recovering.”

The Weather’s Effect on New Home Sales

Certain areas of the country were hit harder than others in February. In the sunny West, significant gains of 20.8 percent were seen. Where the weather was worst, in the Northeast, Midwest and South, losses were seen varying from 20 percent in the Northeast to, 18 percent in the Midwest and 4.6 percent in the south. These declines led to an increased inventory of new homes for sale, rising from January’s 8.9 to February’s 9.2. These numbers support the NAHB theory that weather played a strong role in declining new home sales.

Unemployment Factors

The lack of jobs continues to be a problem for the housing sector. Bloomberg expects joblessness to hover at about 9.6 percent through 2010. Without job security, consumer confidence to take on a mortgage is threatened and home sales cannot flourish. The NAHB indicates that each new home creates three jobs and adds approximately $90,000 in tax revenue. The trend of falling sales means fewer construction jobs will be created and towns will continue to be strapped for funds.

Competition with Foreclosed Homes

Despite new home sales losing to the combination of low priced foreclosures and low interest rates, the median price of a new home is rising. The average price of a new home rose to $220,500 (5.2 percent) in February, compared to the same time last year. The advance suggests a higher demand for new homes is on the horizon.

Further increases in foreclosures threaten the new home market as well. Hundreds of thousands of foreclosures are expected to hit the market in 2010. Mark Zandi of Moody’s Economy.com predicts foreclosures to increase from 1.7 million last year to 2.2 million this year. This leads many experts to believe home prices will fall again as larger numbers of foreclosed properties hit the market.

Reason for Optimism

Despite these concerns, some homebuilders are becoming optimistic. According to Lennar Corp., one of the country’s largest new home builders, new home orders are up by 18 percent, strongly correlating to NAHB’s prediction of a 20% increase in new home sales for 2010. The company also reports fewer cancellations from buyers since the previous quarter.

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