New SF Home Sales Down in December, but Brighter Dawn Ahead

by Houston Agent

Though new home sales look bad, they could be paving the way for growth in 2012.

New single-family home sales in December fell by 2.2 percent from November and 7.3 percent from December 2010, capping off what analysts are labeling a new record low in new home sales – though 2012 may be a new dawn for the struggling market.

According to the latest data from the U.S. Census Bureau and the Department of Housing and Urban Development, 307,000 new single-family properties were sold in December, down from 314,000 in November and 331,000 in December 2010.

The main problem plaguing new-home sales, wrote Calculated Risk’s Bill McBride in a blog entry on the data, is the nation’s vast inventory of distressed properties, and the irregular market conditions that inventory has created.

“The flood of distressed sales has kept existing home sales elevated, and depressed new home sales since builders can’t compete with the low prices of all the foreclosed properties,” McBride wrote.

Because of that, a “distressing gap” has resulted, as McBride labelled it, and new-home sales have suffered at historical degrees. In fact, the Census Bureau began tracking new-home sales in 1963, and the three worst years on record are 2011, 2010 and 2009, with 2008 in the top 10.

In a Wall Street Journal analysis of new-home sales, Paul Diggle, an economist with Capital Economics, mirrored McBride’s analysis.

“The fledgling recovery in housing market activity has yet to encompass the new homes market, where sales fell in December,” Diggle said. “The bottom line is that new home sales are unlikely to rise significantly from their current ultra-low level while they are having to compete with deeply discounted foreclosures and short sales.”

Dire stuff, it would appear, but a National Mortgage News article offered some rays of sunshine, suggesting that the worst may be behind us.

“The consensus forecast of nine bank economists has new homes sales rising 10 percent by in (sic) 2012 to 335,000 units,” the article read. “The forecast published by the Economic Advisory Committee of the American Bankers Association shows home sales gaining strength over the next three quarters.”

Overall, those economists predict sales to increase from an estimated 321,000 in 2012’s first quarter to 350,000 in the fourth quarter. In addition, builder inventories are decreasing, with just a 6-month supply of newly-built homes currently on the market.

Patrick Newport, an economist IHS Global Insight who was also quoted by the Wall Street Journal, said the low inventories are good news.

“The number of new homes for sale also ended the year at a record low at 157,000 (this is good news: inventory will have to be re-stocked once demand picks up),” he said. “Inventory was at an all-time low at the end of the year in all four regions.”

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