Thursday, May 24, 2007

New home prices plunge, sales rise

New home prices plunge, sales soar
Sharpest decline in price of new homes since 1970 spurs stronger than
expected sales in April.

-- A big drop in the price of the typical new home sold in April spurred much better-than-expected sales, according to the latest government reading on the battered real estate and home building market released Thursday.
New homes sold at an annual pace of 981,000 in April, up 16.2 percent from the revised 844,000 pace in March. Economists surveyed by had forecast an 860,000 rate in April.

The gain in sales compared to March is the biggest jump in 14 years. But even with the April spike factored in, April sales came in 10.6 percent below year-earlier levels.

The median price of a new home sold in April plunged 10.9 percent from a year earlier to $229,100. The new price reading was also down 11.1 percent from the March reading.

It was the sharpest year-over-year drop in median new home prices since December 1970 and the biggest month-to-month drop on record.

"The builders are clearing out the merchandise," he said. "They're doing a Detroit here. When you have excess supply, the quickest way to move supply back into balance with demand is to cut the price, and finally they're doing that. I would not say this is the bottom of the housing recession."

I’m not quite sure what to make of this report. The biggest spike in sales in 14 years but April sales still came in 10.6 percent below year-earlier levels? They lost me on that one… My guess is this news will be tempered soon with a restatement.

‘Doing a Detroit’, sure it’s probably a good idea but honestly, who is going to buy? The sub-prime and Alt-A borrowers are done, effectively eliminated from the market now. Most everybody else who was hot to buy a home when the market was supercharged already have one and probably can’t sell it. The lucky ones like me who sold are not willing to run back in and catch a falling knife. That leaves who? I do not know.

With the Chinese stock market shooting past irrational exuberance, and Spain heading for divorce from the EMU over its growing deficit and evaporating reserves, I’d say there is fair reason to be cautious. Any meltdown here will ripple across the planet.

France is also facing the impending burst of it’s own housing bubble ahead of a decidedly downward sliding U.S. market. These are not just random events, they point to deeper systemic problems that are more closely related than they appear.

As we move closer the July we should see some definitive moves down for many asset classes, lead most likely by the failure of housing markets to stabilize, but could also be kicked off by China’s stock market or a derivatives meltdown.


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Friday, May 25, 2007  

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