Thursday, October 26, 2006


New home prices plunge

But And, of course, sales increase.

Sales of new homes posted a surprising increase in September, although that may have been fueled by deep price cuts by builders struggling under a glut of unsold homes. [Emphasis added.]

May have been? Prices drop and the quantity demanded goes up. Gee, where have I heard that before? Oh yeah, econ 101.

New homes sold at an annual pace of 1.08 million last month, the Census Bureau reported, up 5.3 percent from August. Economists surveyed by had forecast a reading of 1.05 million.

But the median price of a new home tumbled 9.7 percent from a year earlier to $217,100. And that measure of prices doesn't capture all the incentives such as free closing costs that builders have been offering to boost sales.

The number of completed new homes available for sale at the end of the period rose to a record 157,000.

A report Wednesday from the National Association of Realtors showed the sharpest year-over-year drop on record for median home prices. But a separate Census Bureau report earlier this month showed home builders having an unexpected increase in housing starts, and a survey of members by the National Association of Home Builders showed a small improvement in confidence, the first increase in that measure in a year, although those with a negative view of the new home market still outnumbered those with a positive view by a four-to-one margin.

What you can take out of this is that prices for new homes have fallen at least 9.7% because the figures do not take into account incentives like granite counter tops or the seller covering the closing costs. Builders have increased housing starts but from much lower levels than last year. I figure that they are willing to build for lower prices since the cost of construction is coming down. Besides building is how they make money. No building, no profit. Also, the number of homes sitting around waiting for buyers is not dropping. All this jibes with the sixth straight drop in existing homes sales.

The psychology of a home owner is affected by the bubble years and by the intrinsic worth he places on his home. It is human nature to value something you have owned and which has given you pleasure. Did anyone happen to see the commercial in which a old lamp gets left out on a crube in the rain? It chides us for feeling sorry for the lamp because afterall, it is just a lamp. But we do feel something for it. I know I have an inordinate concern for some things which my wife regards as junk. It is difficult for a homeowner to lower the price of their house because they have seen what prices were last year and they think should be getting those prices. At the same time they remember all the good times they had in their homes and there might be a tinge of remorse about lowering the price (devaluing?) their special place. Home builders have no such compunction.


Stubborn home sellers could worsen the downturn. (Via Ben Jones.)

From the worst place in the USA to be trying to sell a home:

Mike Larson, an analyst with Weiss Research in Jupiter, said in a statement that builders are offering $100,000 discounts, one-day sales and other perks, which are helping lower home values across the region. Sellers of existing homes can't match those incentives, so inventory is piling up.

Also, (Via Ben Jones.)


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