Why new-home sales drop was a shock
Sales of newly-built houses fell more than 11% last month, surprising analysts who expected an increase of around 5%. After all, sales of previously owned homes were up. So how did the experts get it so wrong? John Dimsdale explains.
Real estate agent Shellie Young works on a For Sale sign in front of a home in Miami, Fla., on Dec. 22, 2009. (Joe Raedle/Getty Images)
More on The Economy, Housing - Real Estate
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KAI RYSSDAL: This was one of those days where the economic statistic du jour just made you want to say, "C'mon, man, how're we supposed to know what's going on when we get numbers like these?"
The Commerce Department reported this morning that sales of newly-built houses fell more than 11 percent last month. Fell, as in went down. Came as quite a surprise, too. Because the experts who get paid to figure this stuff out had been expecting a 5 or 6 percent increase in new home sales. And oh, by the way, the used home number we got yesterday was quite healthy, thank you very much.
Our Washington bureau chief John Dimsdale explains why and how everybody got it so wrong.
John Dimsdale: There are plenty of reasons to think new homes should be selling. Prices have come down, interest rates are at record lows, first-time buyers get tax incentives. Yesterday, we learned that existing home sales jumped a healthy 7 percent in the same month.
So today's decline left housing economist Lawrence White at NYU's Stern School of Business at a loss.
Lawrence White: At the end of the day, I think, you know, we're basically just scratching our heads. We don't have a great explanation. This may just be a one month anomaly.
But another expert, Jared Franz at T. Rowe Price, has a personal experience that may explain what's going on. He and his wife recently bought a used home, after looking at new ones.
Jared Franz: One of the reasons was because we had more negotiating power. We knew that it was a foreclosure. On the other hand, when we went to look at new homes, builders were very firm not wanting to cut prices. So I think there's a negotiating power that you have, that you can really negotiate hard on an existing home.
Foreclosures are boosting the availability of affordable used homes. But new home construction has been at a stand still. Inventory is now the lowest since the early 1970s. Scarcity keeps sellers from bargaining.
One more anecdotal trend: Franz says new homes are usually built where land is cheaper, outside the city.
Franz: We figured we wanted to downsize and commute to work, have a shorter commute. So we were willing to go into an existing home rather than purchase far out in the suburbs.
Home builders blame the lack of sales on high unemployment and a slow recovery. Housing economists say one month does not make a bearish trend. They're still expecting a sustained housing rebound, although it may take springtime temperatures to get people in a buying mood.
In Washington, I'm John Dimsdale for Marketplace.
Comments
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From New Hope, PA, 12/23/2009
These so-called experts are out of touch with reality. We have a glut of existing homes available at discount prices. Homes of all ages and styles, with mature trees in settled neighborhoods. Who, in their right mind wants to buy a new, over-priced, poorly built home on a clear-cut piece of land? Of course new home sales are down!
From Minneapolis, MN, 12/23/2009
USED homes vs new homes? My husband and I live in a stucco Spanish Revival home built in 1923. How USED is that? What, is the Louvre a USED museum? New vs Used is a ploy by the construction industry to denegrate everything that came before this very moment. What would this planet look like if we all were convinced to have brand new construction? If the choice really was between New and Used? What about solid, walkable, existing neighborhoods like the Longfellow Neighborhood in Minneapolis. Is it a USED neighborhood?
From Sydney, Australia, 12/23/2009
Now Richard, not to get into a one-upmanship contest here, but we are just as capable as the US, if not moreso, of gross real estate excess :P
To quote the SMH (that's Sydney Morning Herald to you foreigners), "Australia has the world's biggest houses at an average of 215 sq m, pipping the United States (202 sq m)..."(http://www.smh.com.au/national/how-the-mcmansion-supersized-the-suburbs-20091204-kaxv.html)
Nothing to be proud of in that statistic, for either nation, I'm afraid :(
From New York, NY, 12/23/2009
For S. B.: are you kidding about "200 sq metre McMansions"? That's 2200 ft². Try 500 or 1,000 m² and we're talking American excess.
From New York, NY, 12/23/2009
Maybe existing houses are selling better to value-conscious buyers because they feel with good reason that they are better-built than the cut-corners, get-it-on-line-fast clones the big builders have been putting to market.
From Sydney, Australia, 12/23/2009
Any news on what is actually being built. In Australia we are facing skyrocketing energy costs to shore up our aging energy infrastructure, and suddenly 200 sq metre McMansions aren't looking quite as appealing.
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