New home sales rose by 4.8% in December, registering a fall of 17.3% on the year with 1.0631 million units sold in 2006, the largest drop in 16 years. Note that to sell these homes, an average of $47K in incentives was included. Also, unit sales are reported at contract signing, so these numbers do not include contracts broken where delivery was not taken by the buyers. Existing home sales fell by the largest amount in 17 years, with 6.48 million units sold for 2006, which is down 8.4% year over year.
All of the "soft-landing" economists are overlooking the fact that new and existing home markets retreated the most in over 15 years. That should put a chill down everybody's spine. That's more than a "simple correction"; that's a rout.
In addition, note builder incentives are not included in the purchase price of new homes. While the article uses an average amount for incentives, it is illustrative that builders are essentially bribing buyers to close the deal. Even with all of those incentives, buyers are canceling orders at high levels; all builders have reported large cancellation rates in their latest earnings reports. Also note that cancellations are not included in new home sales, meaning those numbers are overstated.
A simple "correction" is a decline of say 5%. A year-over-year decline 10%+ is an indication of a serious supply/demand problem.
2 comments:
The housing "bottom" won't be hit until the full force of the foreclosure epidemic that started in 4th quarter is absorbed.
That will take another six months at least to work its way through.
And that's assuming the economy stays strong and there is no recession.
What happens if a recession hits (as many sign now indicate it might)?
Have fun spinning that, National Association of Realtors...
The 17% drop would be disturbing if the mix of transactions matched the traditional mix of buyers. But in the previous few years, the mix CHANGED to include 2nd- & 3rd-home purchasers, as well those moving up to move up (and pay less) vs. their current home. So those people were included in 2005, but were absent in the second half of 2006.
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