Why New Home Sales Statistics Don't Matter!
Posted by Terry Burger on Wednesday, June 24th, 2009 at 8:55pm.The new home sales index came out this week and was again, very week. The media sees this statistic and makes the basic assumption that the housing market is going to take longer to recover. While the media reports the statistic, I've yet to hear any local or national outlet report on the reasons. In my opinion, this bellweather is not a good indicator of what is happening in the housing sector. I've outlined a few thoughts below.
BUILDERS WERE WIPED OUT
In Atlanta, many of the small local home builders have lost their businesses due to the economic crisis. I personally knew some incredble home builders that were also good business people. They took risks like most, and did not see the tsunami of the housing downturn coming. By the time they did, it was too late. Builders work on a 2 year planning cycle at a minimum. So by the time the waves crashed, they had already stockpiled lots and standing inventory that now stand in foreclosure. Some new construction has been on the market for 3 years.
LENDERS HAVE STOPPED LENDING
Many institutional lenders will not provide lot loans in today's economy. If, by some great miracle, a builder survived the housing crisis, unless he can pay cash, there is no money to borrow. It is also incredibly difficult to secure financing to build a home. I had a client with great income, great credit, and wanted to build a house. The bank stopped short of telling him to sell his kidney on EBAY to make the deal work. I exaggerate of course, but the reality is that banks are hesistant to lend for new construction.
NEW AND "ALMOST NEW" HOME FORECLOSURES
In North Atlanta, it is almost impossible to build a new home for what the foreclosure homes are selling. New home foreclosures are selling at 15% to 35% discounts. In very rare cases, even more if the prices are over $500,000. The good news is that inventory is quickly shrinking; espcially nice homes in good school districts on a decent lot.
Quite honestly there is just not a demand for new construction at this time. The statistc that should be tracked is standing new home inventory. As inventory decreases, there will again be a demand for brand new homes.
What are your thoughts?
Related Links
Print
Share2 Responses to "Why New Home Sales Statistics Don't Matter!"
Love the blog! Two thoughts for you. One, I think we're about to see a new generation of real estate developers. Banks don't seem to care about experience as much as they care about cash. I'm seeing clients who have never developed property move into the arena right now because they have strong credit and liquidity. The other thing I'd note is that while the big banks are all sitting on their money, there are some smaller banks out there that were conservative during the good times, are in good shape now, and are willing to lend money on good credit risks. When shopping for development/building money, hit up some of the stronger community banks in your area. They have a lot more flexibility than the big banks and are more likely to lend.
Posted on Thursday, June 25th, 2009 at 9:03 AM.
Terry, I enjoyed reading your article and I agree with you.
Good Job!
Sincerely,
Maria Nemcik
Real Estate Agent in Palm Coast Florida.
Posted on Wednesday, June 24th, 2009 at 11:07 PM.