Mixed Housing News New home sales unexpectedly fell last month as existing home sales were on the rise for the second straight month, although still slightly below expectations. New homes dropped 0.6% to 342,000 units sold. The previous month saw 344,000 new homes taken off the market, but again below estimates. Builders are having to slash prices to try and keep pace with the existing homes market as foreclosures are still driving down prices. There are a lot of good deals out there, many of them getting snatched up as soon as they become available. It's certainly a buyers market right now, but they must be quick to catch the best deals. Last year at this time the median price for a home was $207,900. The median price right now for a home in the U.S. Is $173,000. That is a very significant drop in price. There comes a point where lowering prices on new homes becomes unsustainable. At present Builders are losing the battle as banks and homeowners are dominating sales in the housing market. With new homes sales down so drastically, many builders will get “weeded out” by either stopping building or be forced out of business. Good news for consumers when the contraction is over. In boom times in any business lots of new companies are formed to grab quick dollars off the top. Not all of them are always reputable, reliable or customer oriented. Left in the aftermath of a major contraction are generally strong and good companies. Survival of the fittest at it's best. The sales price of homes dropped a whopping 17% from last year at this time making buying an attractive prospect. For two months in a row now existing home sales have been on the rise reducing standing inventory. Experts predict more foreclosures in the future until this housing market has a chance to stabilize. Of course any good news is welcome by investors, buyers and sellers alike. The market seems to have, arguably, bottomed somewhat. Existing home sales rose 2.4% to 4.77 million, up from 4.66 million the month before but below the 4.83 million forecasted. While sales were up, unemployment figures released by the Government and borrowing costs have put a damper on buying enthusiasm, as is in evidence in new home sales figures. This after four years of decline. Again, a lot of this buying activity is due to Government programs, specifically the $8000 first time buyer credit being offered. Some economists see the light at the end of the tunnel in the housing market. “Improved affordability because of low prices and lower interest rates stirred some sales,” says Nigel Gault, chief economist at his Global insight. ”As long as rates don't rise substantially further from here, we could still stabilize in the housing market.” Whether we have reached a bottom in the housing market decline or not the pressure being put on bonds will have an impact on interest rates. The Federal Reserve has as much as said the Federal funds rate will remain the same the rest of this year barring a national emergency. There is always the chance of inflation sneaking up on us. The problem will be as the economy improves, investors will move from the relative safety of bonds to the more risky and profitable stock market. As bond prices go down from lack of demand, it will drive up the interest rate that banks charge to lend money to consumers. Bonds and interest rates move inversely to each other.
Here in lies the risk for perspective new homeowners. As the economy improves and consumers can better afford homes, the price of homes and the interest rates will most likely begin to rise. So the choices are to buy now while prices and interest rates are at historical lows and the Government incentives are there or to wait and hope the economy falters further and prices drop more. Joel Weihe 06/25/2009