From a press release by the National Association of Home Builders –
WASHINGTON, March 26 – Sales of newly built, single-family homes declined 4.6 percent to a seasonally adjusted annual rate of 411,000 units in February from a strong pace of 431,000 units in the previous month, according to newly released figures from HUD and the U.S. Census Department. Despite the slight decline, this is the second highest monthly total since April 2010 when the federal home buyer tax credit expired.
“New-home sales have been running at a fairly steady pace the last few months, with February adjusting for the strong sales we saw in January,” said Rick Judson, chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C. “While the February pace is encouraging, housing’s recovery is being significantly constrained by overly tight mortgage lending conditions, and policymaker discussions about changes to the mortgage interest deduction could cast a shadow on future housing demand.”
“The February decline is a readjustment to the unusually high numbers that we saw in January, and we are still in line with our forecast for 2013,” said NAHB Chief Economist David Crowe. “This is the kind of modest but steady growth we are expecting to see throughout the year as the economy and job market continue to improve, but constraints on borrower credit, higher building material prices and a limited supply of labor and buildable lots hold back a more robust recovery.”
Regionally, new-home sales activity was mixed in February, with the Midwest posting a gain of 13.7 percent, while the Northeast, South and West showed declines of 13.3 percent, 9.7 percent and 2.1, respectively.
The inventory of new homes increased to 152,000 units in February, which is a 4.4-month supply at the current sales pace. Although this is an increase over the previous month, it is still well below normal inventory trends.
We have certainly seen the strong recovery of new home building in this area, driven mainly by the very tight inventory of resale homes. Builders are selling new homes as fast as they can get them up pretty much in all price ranges. There are still many developments that went belly-up during “The Great Recession” which have not yet restarted. Some of them are likely still bogged down in litigation and some of that is caused by the fact that so many builders got out of the business or lost all of their workers. Combine that with the tight credit market that many smaller builders face and it’s tough to re-launch a building company these days.
With the advent of warmer weather, we should see more used homes come on the market, which will help re-balance the market a bit. Right now we are in a seller’s market, with multiple bids and biding wards not uncommon for really nice houses. Homes values have improved about 8% (year-over-year) so far this year. At the low end of the market, cash is king once again, with most sales under $150,000 going to cash buyers. Those investors are buying them up to rent out, if they are in decent shape; or to flip, if they need repairs.
Once the credit industry gets tired of shooting itself in its own foot by making borrowing so difficult things should improve quickly, too. There is just a lot of pent-up demand in the market right now, leading to frustrated buyers who either can’t find what they want or can’t bid enough for homes due to the difficult mortgage situation. Would-be renters are also having great difficulty finding places to lease. So many displaced people are in credit rebuilding mode after losing a house that there is little lease inventory available right now for middle-class income families. It is almost impossible to find good homes to lease for under $1,000/mo.
My advice for buyers is to be patient and be prepared. You must be ready to make a buying decision and you must be ready with your mortgage pre-approval. You may also have to put more money into the deal than you had hoped, especially if you hit a conservative appraiser who can’t see the value of the property like you do. The market is moving in a positive direction again, in terms of appreciation; so, the risk of the property’s value dropping after you buy is greatly reduced.