This week saw the markets advance, despite some disappointing economic data, but progress can only be described as Grinch-like. Still, there’s nothing in the tea leaves that indicate that this coming week will be anything more than a big yawn at worst and maybe a moderate new yearly high at best.
Early in the week, bulls got a body blow when last quarter’s GDP was revised downward to 2.2% from an initial estimate of 3.5%.The takeaway from that is not to put too much stock in big macroeconomic numbers the first time around.
Then on Tuesday existing home sales for November registered a surprising 7.4% uptick, the highest rate since February 2007. Housing prices on average increased a few hundred bucks as well. Happy days were here again.
The announcement on Wednesday that new home sales for the same month fell 11% left investors confused and worried, and with good reason. New home sales are generally considered a better indicator of the housing market then existing homes sales (although it is a smaller slice of the market). Since housing is key to this economic recovery these numbers pose a conundrum—at least on the surface.
But in my opinion, there’s really no contradiction in this data from a home buyer’s (and sellers) point of view. The first time home buyer’s $8,000 tax credit, which was set to expire in November, had the effect of cramming a lot of buying demand into the month of November.
Closing on a home takes time, sometimes as long as three months, so mortgage brokers made sure to get the sales completed by the end of November. However, new homes come in many varieties and the majority of them come with higher price tags.
“In regard to new homes there aren’t a lot of builders willing to build a new home under $200,000 around here,” says Maureen Phillips, a mortgage loan officer at Greylock Federal Credit Union.
That’s true and not just in the Berkshire region. Across the nation, builders are averse to building cheaper homes because the profit margins are so much lower. As a result, many new homes are beyond the reach of first time buyers.
“Plus new homes above those $200K levels usually require a higher down payment than most first time buyers can afford,” she adds.
As my readers know, my wife, Barbara, and I have been shopping for a home in Berkshire County for the past six months. Unfortunately, we don’t qualify for the first time credit but when that credit was extended, and a new $6,500 tax credit was established for people like us, it helped, but didn’t send us rushing head long into closing on just any house.
From our point of view (and I believe buyers across the nation share our attitude) there’s no hurry, especially in this economy. We have found that although prices are down between 20-30% from their highs across the country, there are still a lot of sellers who bought at the top of the market and are afflicted with the “but not my house” syndrome.
Most sellers and builders know the facts: that qualified buyers for larger homes are scarce and the only properties that are moving have been substantially reduced in price. Yet, their house is always an exception.
“I hear it all the time from realtors,” says Phillips, “but not my house, the sellers argue, and give a hundred reasons why their house is different and should sell for at least as much as they paid for it.”
So the stock of unsold new homes remains, or even grows; and now you know why new home sales dipped 11% last month.
But don’t let that ruin your holidays. There are buyers out there just like us, and we’re willing to do our part to stem the housing decline. I believe housing will ultimately begin to grow as sellers adjust to the new reality. In addition, GDP for the fourth quarter is expected to grow by 3.9% and even the Treasury believes unemployment will start to fall in 2010. What’s not to like about that?