New home sales dropped to an annual pace of just 283,000, according to the Commerce Department. That was down 8.1% from a slow September and 28.5% from 12 months ago when the annualized sales rate was at 430,000.
Sales are off nearly 80% from the housing boom peak pace of 1.4 million, set in July 2005. Sales have remained near historic lows this year despite very attractive mortgage interest rates that slash the monthly costs of homeownership.
The Commerce Department also revised August sales figures downward to 275,000, which represents the record low point for new homes sales since it started tracking figures in 1963.
There’s a major factor depressing home sales of all kinds, according to David Crowe, chief economist for the National Association of Home Builders.
This likely has partially to do as well with the expiration of the homeowner tax credit. Many economists were predicting a rebound in the near future but this news puts the housing market in worse condition than anyone anticipate; which in turn means that loan modifications, short sales, and foreclosures will continue to play an enormous influence as people continue to remain underwater on their homes.
“So much bargain-priced, ‘used’ home inventory is available that the builders just can’t compete,” he said. “Over time, we’ll work through that mountain of existing home supply. But the key words are ‘over time.’ New home builders won’t have much to be thankful about any time soon.
The median price for existing homes sold in October was just $170,000, compared with $194,900 for new homes. That’s the lowest median price for new homes sold in seven years and down 13.9% from September.
The enormous inventory, coupled with continued downward price pressure (although we do believe the bottom is somewhere nearby!) means you need to make sure when making your short sale pitches to the banks you mention the status of the economy and the recovery that seems so distant in the future.
Crowe said that indicates many of the buyers were first timers. They’re less constrained than older potential buyers because they don’t have to worry about selling their existing homes in order to purchase new ones. One light at the tunnel, however, is a slightly shrinking inventory:
One encouraging aspect of the report for home builders is that inventory continued to wane. The number of new homes for sale at the end of October was about 202,000, less than nine months’ supply at the current rate of sales. The number of homes on the market has dropped about 20% since October 2009.
As we have been saying for some time, we think there is at least 3 – 4 more years of strong short sale potential in the marketplace. Conflicting information about economic recovery makes us believe that the optimism about rebounding home prices is, well, a little too optimistic.
What are your thoughts? Post ‘em in the comments!