Existing Home Sales – OUCH!
Ugly Ducklings become Beautiful Swans
New home sales once again showed an annual decline in 2010 much as they did the previous year. New home sales totaled 321,000 units in 2010, a 14.4% decline from the 375,000 that sold in 2009, according to the US Department of Commerce. Compare this number to the 600,000 new homes per year most economists consider healthy. Under normal conditions, 600,000 new homes are needed to absorb the national population growth.
Why the unexpectedly low number? Three reasons:
- New homes are competing with prices of foreclosed homes that have glutted the market and will continue to do so in 2011;
- Because inventory levels remain high, there remains a lot of uncertainty over home prices, with many experts believing they will continue to drop in 2011
- High Unemployment; currently at 9.4% nationally and not expected to drop lower than 9.2% in 2011.
Short term, new home sales are likely to remain flat, and continue to create a drag on the economy. It’s interesting to note that according to Standard & Poor’s/ Case-Schilling index, home prices fell in November in 19 of the 20 major US cities, many to their lowest levels in years.
According to the National Association of Home Builders, every new home built will create 3 new jobs in the local economy and generate about $90,000 in tax revenues – major factors in any economic recovery.
Long term, the picture is far more positive. Once foreclosure activity subsides and housing inventory levels return to a more normal 6 month supply, new construction activity will pick up, helping the economy and existing home prices increase to their more normal relationship with new home prices.