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The Strength In New Home Sales Shows That Banks And Builders Have Figured Out The Market

2008
10.28

Despite turmoil on Wall Street, the housing sector continues to deliver good news.

Last month, led by a 22 percent surge from the West Region, New Home Sales rose 2.7 percent over August.

A “new home” is a newly-built residence, never before lived in. New homes are usually built and sold by real estate development companies and their respective marketing firms.

The surge in New Home Sales volume is consistent with the other good news we’ve seen from the housing sector. It marks the 4th positive signal in the last two weeks.

  • October 8: Homes under contract to sell surge 7.4 percent
  • October 23: Foreclosed homes fall 12 percent in September
  • October 24: The supply of “used homes” falls to an 8-month low
  • October 27: The supply of new homes falls by 7 percent

However, it can’t be ignored why housing is showing a statistical improvement. The main causes are two-fold:

  1. Banks are getting better about selling foreclosed homes
  2. Builders are keen to dump their excess inventory

Both of these factors drive down home sales prices nationwide which, in turn, draws value-seeking home buyers back to the market. In addition, because the number of active sellers dwarfs the number of active buyers, today’s home seekers enjoy a tremendous amount of negotiation leverage, making real estate even more attractive.

But, as with everything in business, markets seek balance. As home supplies dwindle, buyers’ ability to negotiate sales prices and closing costs will fall. It’s Supply and Demand — as supplies drop, relative demand rises, and prices rise with it.

In every American neighborhood, homes that are priced “right” are selling quickly. And now that banks and builders have figured out the formula, more homes are going under contract than at any time since 2007.

Much of the current economic climate is being blamed on housing. If the data is accurate, though, we can infer that the climate may not last much longer.

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