The U.S. Census Bureau and the Department of Housing and Urban Development announced the new residential one family sales statistics for January 2008 today.
Sales were at a seasonally adjusted annual rate of 588,000, down 2.8% below the revised December rate of 605,000 and were 33.9% below the January 2007 estimate of 890,000. The median sales price of new houses sold in January 2008 was $216,000 which was down 15.1% from January 2007. This is the largest annual decline (going back as far as 1963). The seasonally adjusted estimate of new houses for sale at the end of January was 482,000 which is a 9.9 months supply at the current sales rate.
New home prices are sticky on the way down. Builders try hard not to lower prices. Instead of lowering prices, they often will sweeten the deal with "free" upgrades, or will pay for closing costs. The sales price is what is recorded. The concessions are not noted. This works for a while, but that can only go so far in a truly declining market. Soon, buyers will demand all the "free" stuff and want price concessions as well. Also complicating things is the understated inventory and overstated sales numbers as discussed in this previous post. Here is an update on the components of New Homes
Sales were at a seasonally adjusted annual rate of 588,000, down 2.8% below the revised December rate of 605,000 and were 33.9% below the January 2007 estimate of 890,000. The median sales price of new houses sold in January 2008 was $216,000 which was down 15.1% from January 2007. This is the largest annual decline (going back as far as 1963). The seasonally adjusted estimate of new houses for sale at the end of January was 482,000 which is a 9.9 months supply at the current sales rate.
New home prices are sticky on the way down. Builders try hard not to lower prices. Instead of lowering prices, they often will sweeten the deal with "free" upgrades, or will pay for closing costs. The sales price is what is recorded. The concessions are not noted. This works for a while, but that can only go so far in a truly declining market. Soon, buyers will demand all the "free" stuff and want price concessions as well. Also complicating things is the understated inventory and overstated sales numbers as discussed in this previous post. Here is an update on the components of New Homes
Following is a chart showing the median new home sales price and the effects of inventory. This goes back to the classic economics of supply and demand. 6 months supply is commonly talked about as being the breakpoint between a buyers market and a sellers market. When the market is flooded with inventory, then buyers can be picky, sellers may have to lower their prices to sell a property. When there is low inventory, buyers will sometimes have to overbid to win homes with terms suiting the sellers.
It is amazing how the boom from 1996 to 2005 followed this rule like clockwork. Months supply went lower than 6 months in July of 1996 and went over 6 months supply in January of 2006.
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