New Home Sales Stall

The rate of new home sales fell in February to an annual pace of 313,000 down 1.6% from January’s 318,000 but off 6.8% from December’s revised 336,000, which marked a high point since the end of the home buyer tax credit in spring 2010. The three-month moving average sales pace remains the highest in almost two years.
The fall off is likely a combined effect of higher than expected sales in December because of warmer and dryer weather than normal as well potential home buyers’ difficulty obtaining a mortgage and appraisals lower than the agreed upon price. In a separate NAHB survey, sales contract cancellations have ticked up for the last four months suggesting the combined effect of tight credit standards and low appraisals have made it difficult for some buyers to qualify after they signed a sales contract.
Sales continue to be spotty with solid increases in two regions, Northeast up 14.3% and West up 8% while the Midwest and South regions were down 2.4% and 7.2% respectively. The 13,000 decline in the annual sales rate in the South alone accounts for more than the total national change.
The inventory of unsold new homes remains at the lowest level in the data series history that goes back to 1963. The months’ supply ticked up one-tenth to 5.8 because of the slow sales pace. The number of completed and unsold new homes fell to another new low at 54,000.
Median sales price increased by 6.2% to $233,700 and the highest February since 2008. The increase is likely the result of two trends. The increase in sales was in the Northeast and West where prices are higher than the other two regions. And, the sales that did pick up were in the $200,000 to $300,000 range, which reflects both the higher regional variation as well as the preferred price range for the buyers that can qualify for a mortgage.

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  1. Of all the reasons for poor sales that I have heard over the past five years, I have yet to hear any expert cite the real reason for poor new home sales. That reason is the trillions in home equity that has simply disappeared since the bubble burst and the government subsequently decided to make it much harder to buy a home as distressed inventory soared. It is home equity that most people use to buy a new home, whether it is a primary residence, vacation home or retirement home. Home equity is truly the lifeblood of the new home industry and the only rational fix is to reduce the distressed inventory that is doing so much harm to the industry and do it quickly. Doing it quickly is now essential because we have reached the point where foreclosures are causing foreclosures. As foreclosures have increased, they have driven values and equity down, putting additional millions underwater and just a job loss, divorce or illness away from becoming yet another foreclosure. I have submitted a plan to the GSEs and FHA calling for them to dispose of this extremely harmful distressed inventory by using a “Rent to Own” program based on an Installment Sales Agreement (aka Contract for Deed). With over 40 million rental households in the U. S., 70% of whom want to own a home as soon as possible but with most unable to do so because of the high up-front costs, such a plan could dispose of this inventory in not years but months. More importantly, it is the only vehicle that can deal with the shadow inventory that is slated to dump another million foreclosures on the market this year. If you members are feeling an appraisal problem now, what will that problem look like by next January? At the same time, the plan would provide a path to homeownership to over a million Americans without creating another toxic asset or public housing scattered throughout cities, counties and states. I have also submitted information on the plan to NAR, MBA and NAHB leadership. The problem is, Realtors and mortgage lenders won’t support it because it won’t make them a buddle of money. Why NAHB won’t support it, I couldn’t venture a guess.


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