New Home Sales Fall by Record Amount
- Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.
- The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980.
- The government reported that the median price of a new home barely budged last year, edging up a slight 0.2 percent to $246,900, the poorest showing since prices fell by 2.4 percent during the 1991 housing downturn.
- The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s.
- While the median home price for the entire year was up slightly, the median price of homes sold in December was $219,200. That was down 10.4 percent from a year ago, the biggest 12-month price drop in 37 years.
- It would take 9.6 months to eliminate the backlog of unsold new homes at the December sales pace, the longest stretch of time since the month's supply stood at 10.3 months in October 1981.
- The big fall in new home sales followed earlier reports that sales of existing homes fell by 13 percent in 2007, the biggest drop since 1982, while construction of new homes dropped by 24.8 percent last year, the biggest fall since a record decline in 1980.
Median home prices will be solved by 2 things (1) people forced out of their homes by unaffordability - although the government is doing everything in its power in making people continue paying for an overvalued product - they call this "help" and (2) stubborn home sellers in an illiquid market finally dropping prices. If the latter point does not happen then the other choice is we hold prices at this level and wait 7-9 years for real wages to increase 3-4% a year to catch up to where homes are actually affordable... for a person who has to actually have a FICO score north of 600, a documented income, and 5% down. (things that were not necessary in 2004-2006)
I'm still boggled by those calling for a housing bottom this summer, but I will be the first to say I am wrong if some miracle does happen. At this point I think the people who are going to be able to refinance with this "free money 2.0" policy of the Fed are just going to be happy not to have this huge weight over their head of an ARM jump. They are not going to be out in the market looking for a new home. So we wait, and wait. At some point the combination of falling prices and nearly free money (dare we go to 5.25%? 5.10% 30 year rates?) will bring business back. But I don't think one or the other - both will need to be there - especially with banks now actually forced to (gasp) assess credit worthiness of the borrowers. Oh yeh, one more thing they are trying to slide into this "rebate program" is a major overhaul in the limits of loans for Freddie and Fannie - instead of $417K as they have been for many years, now they want to shuffle mortgage limits up to $720K or so. Which means I'd be very afraid if you were a Freddie or Fannie investor... or a tax payer. A lot of Californians and New York (and other high cost of living states) are going to be salivating to shuffle off their risk to the quasi government institutions.... these companies are already on the edge and now we want to shuffle off even more high risk loans their way. Sounds prudent and a very solid idea from the politicians. Anything to get this housing market going and keep prices inflated over where they should be...
