New-Home Sales Set Record Low Last Year
Friday, January 30, 2009
New-home sales plummeted last year as builders struggled to unload a glut of houses, and the sales rate hit a record low, according to government data released yesterday.
Builders cut production and prices but are competing against a backlog of foreclosed properties that are selling at significant discounts, economists said. Until more buyers venture back into the market, prices will continue to fall and sales will remain slow, they said.
In December, new-home sales tumbled 15 percent compared with November, to an annualized rate of 331,000 sales, and were down 44.8 percent compared with December 2007, according to the Commerce Department. For all of 2008, builders unloaded 482,000 new single-family houses, down 37.8 percent from 2007. That is the biggest year-over-year sales decline on records that go back to 1963.
The market was weakest in the Northeast and West, where sales fell 50 and 47 percent, respectively. In the South, the region that includes Washington, sales were down 12 percent. They were off 6 percent in the Midwest.
"I am surprised they are this bad," said David Crowe, chief economist for the National Association of Home Builders.
Meanwhile, prices have tumbled to 2004 levels. The nationwide median sales price fell 9.3 percent, to $206,500, in December from $227,700 a year earlier, the biggest drop since 1970. For the year, prices fell about 7 percent, to $230,600, from $247,900 in 2007.
Despite industry efforts to cut supply and prices, there are still far more homes than buyers. It would take 12.9 months to sell all the homes on the market at the current rate, according to the Commerce Department. That is the worst sales rate on record.
"As much as builders have cut starts of new homes, their sales keep falling faster," said Stuart Hoffman, chief economist for PNC Financial Services Group in Pittsburgh. "Which is why there are 13 months of new homes sitting there around the country looking for a family to buy them."
The current number of homes for sale might have been acceptable two or three years ago, but the sales rate was much faster then, economists said. While new homes await buyers, existing homes in pockets of the country are being snapped up by bargain hunters, according to industry data released earlier this week. But that market is being fueled by foreclosed homes and distressed sellers that have dragged down prices.
"A builder has to make a profit, or they will go out of business. They have to cover their costs," said Patrick Newport, U.S. economist for IHS Global Insight. "But a bank, when it forecloses, it will sell it for whatever it can."
In many markets, builders are competing against homes they constructed just a few years ago and are now on the resale market, said Kenneth Wenhold, director of the mid-Atlantic region for MetroStudy, a research firm. "Resale prices are so low in a lot of markets, it is below the cost of what it costs the builder to build it," he said.
But prices in the new-home market can't come down much more, said Crowe. About 60 percent of builders surveyed by his association said they were no longer making a profit from home sales, he said. "You're paying people to take your house at that point," Crowe said.
The local new-home market is stronger than the national market but still has weaknesses, Wenhold said. At the current pace, it would take 6.6 months to sell the 5,917 new single-family homes on the market in the Washington region, he said. "Sales are still declining and probably will for another few quarters," he said.
K. Hovnanian Homes, a large home builder, is competing with resales after cutting prices 10 to 20 percent throughout Maryland and Virginia and offering to pick up buyers' closing costs, said Dee Minich, a senior vice president of sales and marketing. Sales still slumped most of last year, but there was an uptick in demand in December from buyers taking advantage of lower mortgage rates, Minich said. "We're feeling optimistic," she said.
Yet, the New Jersey-based builder expects sales in the Washington region to slip to about 700 this year from about 850 in 2008.