Monday, April 25, 2011

New Home Sales Up While Prices Continue to Sag

By Mark J. Donovan

Well the good news is that new home sales were up in March. New home sales were up 11.1% in March compared to February. Also, the supply of new homes was at a 43-1/2 year low. Both facts suggest a glimmer of hope in the housing market. But not so fast! The bad news is that the average sale price on a new home fell 4.9% from a year ago to $213.8K.

How can this be? With limited supply home prices should be going up. The problem is that this data is solely for the new home construction market and does not take into account all of the homes on the market. The housing economy’s natural equilibrium point is about 2 to 2.5 million homes for sale at any one time in the U.S. Unfortunately there are 3.55 million existing homes on the market today. In addition, when foreclosures or near foreclosures are included in the mix there are approximately 8-9 million homes on the market. Consequently new home construction has to compete with this entire housing market supply, and traditionally older homes are priced less than new construction. Thus the reason for declining prices on new home construction.

Data suggests that foreclosures should begin to dry up in the next 6 to 12 months. When and if this occurs, the housing market should begin to recover. However, the recovery will most likely be a slow process over a number of years.

So in the mean time, if you own a home continue to make the best of it. Make repairs as required, invest in it as your family and income grows, and enjoy what many people have always wanted and have been unable to have, a home they can call their own.

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