New Home Sales Soar

Posted by Jeff Aughey on Wednesday, May 30th, 2007 at 4:34pm.

New homes sales were up nationally in April by 16.2% over March 2007. The south was the strongest region in the country, with sales up a whopping 27.8% over the previous month. This sound good at first read but is it? I reviewed the sales figures for April resale homes in our area and they showed basically no improvement over March. The market is staying pretty much the same, not bad but not rip roaring either. So what is going on with new home sales? The first thing that popped into my mind was the automobile industry after the attack on September 11, 2001. Do you remember all of the zero percent financing and huge incentives available that were offered to create sales at any cost? Well it did create sales in the short term for the car companies but at the expense of cannibalizing futures sales at better margins. Many new homes builders right now are doing the same thing. They are offering price reductions and other incentives to spur sales as they are concerned that the housing slowdown will seriously damage their business. Their actions are affecting the market now. I guess that would help explain why the median sales price of a new home dropped to $229,100 which is 11.1% below the March 2007 level and 10.9% below this time last year. That represents the largest year over year drop since 1970. Yes, price reductions will help move products. It works every time, but builders need to be careful not to offer more incentives than are necessary to reduce their inventories since they can damage the market pricing in the process. New home builders are not to blame for home values slipping. It is a result of supply and demand and demand is weaker now than we are used to and housing supplies are way up. Builders are nervous with good reason. The housing market is jittery with talk of a possible economic recession, sub-prime mortgage woes, rising interest rates and people just plain scared because of all the bad news in the media. We have been spoiled by a long run of strong economic good news and an incredible housing market with strong sales and rapidly rising home values. Things are really not bad now. Interest rates are still historically very attractive, unemployment levels are low and home sales, while weaker than last year at this time, are really doing fairly well. I have been selling real estate since 1988 and I can tell you it could be much worse than we have now. This is really just a normal market and looks weak only in comparison to the great market we have become accustomed to. Be positive. All the best, Jeff

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