Friday, January 27, 2006

Conflicting media reports--Resale vs New

I’d like to provide some clarification for the many folks who seem confused over the seemingly conflicting media reports of new vs. existing home sales. Lets take the past 2 days as an example.

Yesterday, the media reported that existing home sales declined 5.7% in December—the 3rd consecutive month of declines (wow, that sure seems like bad news for the industry). Then today, we receive what seems to be a completely different story. This Bloomberg story reports that new home sales increased by 2.9% in December (wow, this sure sounds like good news for the economy). So which of these reports is accurate and what should you believe?

Technically folks, both of the reports are accurate. New home sales increased, and existing home sales decreased. What many folks don’t understand is the fact that the resale market is 6 times bigger than the new home market (~ 7 million resale homes per year vs. 1.2 million new home sales). Therefore, the number of resale home declines in December (-5.7% x 7M = 399,000/12 months= 33,250) carries 11 times the weight of the number of new home sale increases in December (+2.9% x 1.2M = 34,800/12 months = 2,900). So, the TOTAL overall decrease in the number of home sales over the previous month is: 33,250-2,900=30,350

Bottom Line: The Existing Home Resale market is the major indicator to watch. I believe the only reason new homes are still doing well is numerous builder incentives (low rates, closing deals, free upgrades, vacations, etc)

From what I’m seeing in the resale market, I think the overall market is on the downhill slide. Hopefully, we’ll be able to have a controlled decent rather than sliding off the cliff into oblivion.


41cadillac said...

Hopefully new home sales will continue. Perhaps a smaller more affordable home for those not making mega bucks in the USA.

Changes in employment, (layoffs at GM and Ford and Delphi, and ect.), is bringing to the USA a lower income for many.

This easy money for mortgages will soon be history.

PHOENIX, Jan. 26 (UPI) -- Sen. John McCain, R-Ariz., tests the declining real estate market as he tries to sell his recently price-reduced $3.75 million Phoenix mansion.

The 11,000 square foot estate, with its nine bedrooms and eight bathrooms -- and eight surveillance cameras -- has been on the market for three months.

Only six prospective buyers have checked it out, the Arizona Republic says. That led to a half-million-dollar price cut.

A year ago, there were 145 homes priced at $500,000 or more for sale in Phoenix. Now, there are 1,341. Houses were selling in days last year, but now, it's taking an average of six weeks.

McCain and his wife, Cindy, who grew up in the house, want to downsize.

contrarian2day said...

Las Vegas too has cooled substantially. I sold in July 04, took 3 days to sell, got full asking ($440K) with a rent-back option. I rented this same home back from the out of state speculator, for 1 year (at a price cheaper than his mtg pmnt).

I eventually found a better rent bargain and moved out ofter the 1yr lease expired. The speculator tried to rent it out again, but found no takers in 3 months.

Eventually, the speculator put the home back on the market. He is asking $470 for the home and it has sat stagnant now for the last 3 months.

I'm so absolutely sure he's in a panic and just wants to unload it for what he has into it, but I don't think it's going to happen.

Far too many homes are now being listed, people have a wide variety of choices and many sellers who have large equity margins, can reduce to sell. This guy doesn't have any options and is stuck.

I actually feel bad for the guy, as he was very nice, seemed rather intelligent, and I believe was talked into buying into the Vegas market by his out of state realtor friends who exuded a "can't lose" mentality.

Anyway, I received an E-mail today showing the state of affairs in the LV housing market--this is only the first example of the soon to come "fire-side sales":

Saturday, January 28th Only!!!

Save up to $70,000 in select new home neighborhoods this Saturday only.

Build your dream home or find a home that's ready to move into right now with huge savings during this one day new home sale.

There are no gimmicks. It's first come, first serve on all inventory homes and remaining homesites.

Contact your EASYstreet Realtor today or give our office a call.

Call today. Time is running out.

(702) 280-4663

EASYstreet Realty

$70,000 in savings just for you!

Easy Street Realty Inc
1421 E. Sunset Rd., Suite 10, Las Vegas, NV 89119