Thursday, July 26, 2007

New Home Sales Sink

Yesterday I posted about the steep decline in existing home sales. This report documents that same slide in new home sales.
The pace of new home sales was weaker than expected in June, according to the government's latest look at the battered real estate and home building market.

New homes sold at an annual pace of 834,000 in the month, down 6.6 percent from the revised 893,000 rate in May. Economists surveyed by had forecast sales would slow to a 900,000 annual sales rate in June.

The median price of a new home fell to $237,900, down 2.2 percent from $243,200 a year earlier. A glut of new homes on the market have pushed down prices and the government figures may not fully reflect the softness in new home prices, as roughly three-quarters of builders surveyed by their trade group say they are offering incentives such as covering closing costs or offering home features for free in order to support sales.
In the early 1990's the housing market in NY took a steep decline. It was at that time that I was able to purchase a cooperative apartment in a suburb of New York City for $40,000.00. In order for me to buy that same apartment now I would need to pay roughly $160,000.00. If I had the same job with normal yearly raises I would not be able to afford the apartment I had purchased just 15 years ago. That is the same situation most people are now in.

If you already own a home then you can take advantage of the built up equity but for first time home buyers it is becoming increasingly impossible to afford even a simple home in many major cities. What we are witnessing is the correction in the housing market. This correction will hurt in the short term but will actually lead to greater affordability for many in the long term. Those who will be most hurt are those who purchased their homes within the past two years. These people can be looking at mortgages higher than the resale value. This has been the cause of the recent spike in foreclosures. That spike is expected to continue for the next year. As Betty Davis said "It's going to be a bumpy ride".

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