The attractive prices of repossessed houses have pushed down sales of new single-family houses in May, based on home sales data released this week by the U.S. Commerce Department.
In May, sales of new single-family houses declined by 0.6 percent to an adjusted yearly pace of 342,000 from April, representing a nearly 33 percent drop from the May 2008 adjusted yearly sales pace of 509,000. April’s adjusted yearly rate was 344,000.
Homebuilders expect the adjusted yearly rate to increase to 360,000 or more in the coming months.
In contrast, the sales of previously owned homes in May increased by 2.4 percent, as prices declined by almost 17 percent from price levels in May 2008.
A bank economist remarked that newly constructed houses cannot match the bargain prices of repossessed houses. Besides, many first time homebuyers taking advantage of the federal tax credit are buying repossessed houses because these are the ones they can afford.
Based on real estate sales in May, one-third of all existing-home sales were bank-owned foreclosure homes.
Additionally, in the past several months, for every 14 foreclosure homes sold, only one new home was sold. Housing analysts say that the ratio of existing-home sale to new-home sale will stay high for a time, as repossessed houses become affordable to more homebuyers.
Homebuilders hope that it would not take a long time for the ratio returns to its historical level of six to one. Shares of home builders have been fluctuating in the stock market these past months, as investors base their decisions on various reports related to housing market recovery.
Large homebuilders have been trying to survive the competition with bargain-priced foreclosure houses by reducing their home construction activities, controlling their home inventories and cutting costs.
Some builders have reduced the size of houses they are building and have developed home products that can compete with the prices of repossessed houses.
Meanwhile, smaller home builders have been accepting home repair contracts and home building projects from owners who want to be more involved in the design and construction of their homes.
Although housing starts increased by 17 percent in May to an adjusted yearly pace of 532,000, much of the jump arose from multifamily construction contracts.
The median price for newly constructed houses rose to $221,000 in May, higher than the $173,000 median price for repossessed houses and other previously owned homes.
Comments on this entry are closed.