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New Home Sales worst in 13 years-Ouch. February 28, 2007

Posted by breichen in Housing.

The sales of new homes have decreased more in this past January than they have in 13 years. The average price of a new home also decreased in January, at a rate of 16% less than the average price of a new home in December 2006. This decline is sales is not particular to any regions in the country either, as home producers are suffering across the country.

“This speaks volumes about the ongoing weakness in the housing sector. Inventories remain elevated. Housing affordability remains low, historically speaking,” Larson continued. “And now, mortgage lending standards are tightening. All of this bodes ill for the 2007 spring selling season. I don’t expect a true, lasting rebound in housing until at least 2008.”

Some speculate that this severe drop in the sale of new homes could be do to elevated sales numbers in the warmer months, most economists think otherwise. The biggest problem seems to be that the market is being flooded with an excess of homes, resulting in a postion that can be described as supersaturation or as CNN.com puts it, “glut.” 175,000 new homes were produced in January 2006, which is a record for new home production. Added to this increased production, the previous 8 months were also record months in new home production. The surplus of all new homes available for sale is at 7.7 months, an increase from the 6.9 month supply in December.

The new home industry and the organizations need to rethink their business plans, clearly. The market is not increasing, yet the new home surplus continues to rise and new home production is at an all time high, with an eight month streak in record production. While production is good, sales are not, which is a bad combination. Perhaps new-home builders should begin to expand on new facets of their organizations like home renovations, home improvements,etc. Otherwise, they will face a serious problem when they will be forced to stop building house because there are simply too many sitting empty and unsold.