Housing Perspective: January New Home Sales
By RYAN TAYLOR
New homes sales reached record lows in January as transactions fell 10.2% from a month ago to seasonally adjusted annual rate of 309,000. This annual rate is the lowest in the history of the reading which the government started in 1963. The median sales price for new homes also fell by 9.9% to $201,000.
The sobering reality is that jobless claims are now the biggest driver of the falling homes sales. When this downturn in housing began in 2005, creative financing had allowed people with jobs to buy houses they could not afford. But even if incomes and employment were still at those 2005 levels, that same buyer pool would not be around to buy up houses at today’s “cheap” levels. Buyers at those prices no longer exist for three basic reasons:
1) They are still trying to stay in their current home by acquiring a modification for their loan.
2) They have been foreclosed on and their credit score is below 700.
3) They no longer have a job so they cannot afford to buy a home even if they wanted to.
These facts are especially bad for new homes sales as most new developments are located far away from job centers. Since foreclosures are now prevalent throughout the country, most people are deciding to buy homes closer to their places of employment so they can avoid the long commute. Furthermore, most of the areas that are in close proximity to job centers are more established and are generally viewed as a better investment.
Those buyers looking to purchase homes in areas with new homes for sale have quite a few properties on the market to choose from. REO properties are becoming more popular purchases because they are frequently cheaper. As modifications become more prevalent, buying an REO in a neighborhood with few “For Sale” signs will be seen as less of a gamble because most struggling homeowners will find it easier to receive some mortgage relief from their servicer. Additionally, these buyers are avoiding new developments because there are not enough other buyers to suggest that the development will acquire the prosperous feel that is often advertised by the homebuilders.
Those who do have jobs can afford to be selective and, as a result, will most likely choose a home in an established neighborhood that is close to job centers. This home will rarely be a new home.
Until a publicly traded homebuilder is forced to liquidate their portfolio of homes, new home sales will remain at historically low levels.
Tags: foreclosure, homebuilder, new home, REO, unemployment