New Home sales Fall to 13 year Low… what this housing crisis data means to you!

Commerce Department released estimates today for Sales of new homes in the United States which fell to a 13-year low in February. This trend has continued over the past four months for Sales and are off about 30% in the past year. This news was higher than projected by Economists which sent a chill through the industry.

Well, the fact that sales are down, has led to lower prices … which should be good news for buyers. So… if prices are down and there seems to be inventory out there, what is the problem you ask? Why aren’t people buying at record lows to consume this supply of homes??

The problem is simple cause & effect. The Cause: It is the old street theory of waiting for the bottom till you jump in! Problem with that is that you only know that the bottom is here when it has come & gone. Remember we are getting these figures a month later (February numbers were released). But the psychology of buyers is “I am going to wait for them (home prices) to go down!”

Really!? The Effect: When this psychology only hurts the economy & their own home values they are purchasing. Because Sellers continue to get pressured to sell lower. Making these figures of home sales to go lower and lower – really only hurting us all (consumer buying decreases due to fears of economic lows)! Its a vicious, vicious cycle.

Not to mention what is going on with credit lending guidelines. They are so tight right now that these figures we discussed above may actually be worse off then we know. Why you ask? Well, the numbers are based off of sales contract figures… failing to include the canceled contracts due to lack of qualifying for financing or whatever other reasons! Its no secret that cancelled contracts are rising because the lending institutions will not lend out or ease thier guidleine untill they know the full extent of their sub prime losses and write downs are done. Even with the FED lowering the discount rates and Fannie/Freddie willing to buy more this has just kept mortgage backed securities from rising, but mortgage rates have only been affected by continuing their roller coaster of volatility (not nearly the drop that the average home buyer expected)!

My point is that this data only proves the psychology of buyers and the resistance of banks to allow a market to easily correct itself. So, I am often asked the question when will the housing market crisis end and why has it not improved… well, there you have it. In my opinion, it took about 1 year for home prices to drop 10%, and it may take another unfortunate 10% to have the buyers demand consume the supply and this marketplace re-correct the housing industries previously overinflated status (including prices and outrageous lending).

Email me for any further questions or call at 626.914.0796.