According to the Census Bureau http://www.census.gov/const/newressales.pdf, the supply of new homes on the market dropped to 6.5 months after being over 8 in February and March. To put that in perspective, in 2005 the supply was never over 5 months worth. That means that in February and March of 2007 there were 60% more new homes on the market than at the highest point in 2005.
I think that the spring has brought buyers out once again, which is one reason for the jump in sales. The other factor seems to be builders are realizing they have to slash prices in order to sell their huge inventory of new homes still on the market. At this point it is better for them to accept low prices instead of letting having them sit in inventory or in some cases go into foreclosure.
This increase in new homes sold, is a sign that these inventories are finally being cleared out and are coming back to a reasonable level. I previously did not make the distinction between new homes and existing homes (used homes) which led me to be confused by the April sales figures. I was looking for any signs that the market may have bottomed and was given some false hope by the rise in sales. However, with prices tanking it is unlikely that we have hit the bottom. There is hope however, prices have come down far enough that buying is looking attractive again (especially for first time home buyers which were practically priced out of the home market in recent years) especially with great bargains to be had by dealing with suffering builders.
Sales of new homes surged by 27.8 percent in the South. Ont the other hand, sales fell in the Midwest by 4 percent, and making it the only region in the country which has seen sales drop. This is not surprising, as I live in the Midwest and see the tremendous amount of homes for sale. Prices here are not dropping as drastically as in the Florida and California markets, simply because they did not rise as high in the first place.
What I have noticed is that prices have flattened (if not lowered slightly) and houses are on the market for very long periods of time. People who have purchased in the last two years have seen no appreciation in most cases, and would have a hard time getting the money they spent back if they were to sell today. The time of the "flipper" is long past. My view is that real estate is looking like a good long term investment at this point. If I were in the market, I would make a deal with a struggling builder, and try to rent the house for whatever I could. I would be greatly surprised if the market did not start appreciating again in the next two years, with someone purchasing now having a decent return on investment if they sell in 5 years. This is simply my opinion of course.
Existing home sales are the more important barometer of the real estate market in my opinion, as they effect the typical consumer (homeowner) the most. On May 25, The National Association of Realtors reported that sales of existing homes dropped by 2.6 percent in April to a seasonally adjusted annual rate of 5.99 million units. That means that sales are at their lowest point nearly four years. This does not bode well for the market. There is a multitude of homes for sale, and all sellers are holding firm with their prices, not willing to believe that prices of real estate have actually come down after skyrocketing for the past few years. These people (and it is already happening) will have to start lowering prices to sell their homes, or especially to sell investment properties that they have mortgages on. And then we will finally see a bottom in this market. Hopefully this is happening as I write this, and the market will start to stabilize. This is unlikely, but I predict it will happen within the year.
The supply of existing homes for sale shot up to a record total of 4.2 million in April, an increase of 394,000 from the March supply. Analysts predicted that this big inventory surge would act to further depress prices.
The analyst consensus is that the market will see a slight recovery in 2008. This is in line with my view, at least for the Midwest. I am not as convinced about other markets, such as California, where speculation has run rampant for many years.
It seems as though the stock market is currently the only thing keeping the U.S. from going into a recession as GDP growth has nearly halted and the all important real estate market has not reached bottom yet. Former Fed Chairman Allan Greenspan puts the likelihood of a recession at 1 in 3. If the stock market receives a correction as many are predicting, what will there be left to invest in (short term)? Let's hope we don't have to find out.
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