Existing Home Sales Up in December While New Homes Sales Down. Why?

New Home ConstructionThe news is out there that existing sales went up by 12.3% in December but new homes starts were down. Why?  With the amount of homes on the market, the way sellers are getting realistic with their pricing, great deals on distressed properties, and interest rates creeping up a bit but still at awesome levels, buyers are realizing that this is a great time to buy a home.   

An article from the Wall Street  Journal states, “The National Association of Realtors on Thursday said existing-home sales rose from November to a seasonally-adjusted annualized rate of 5.28 million. Economists polled by MarketWatch had forecast a rate of 4.88 million, and the rate of sales was 2.9% below the rate of December 2009.”

So why are new homes slowing? Timing and land values mainly.

As for timing, builders usually take 4-6 months to construct a home and buyers don’t want to risk the uncertainty of a market adjustment while under contract such as interest rate changes. Some builders have adjusted and will build spec or inventory homes  to meet timing demands and will protect a buyer’s interest rate with an extended lock. So go out there and shop new homes with confidence! Pricing is awesome!

Additionally, land purchases from several years ago have a direct correlation with home pricing today. In many cases, new homes on the market today are a result of land purchases made by builders and or developers 2-5 years ago.  Builders/developers will buy raw, undeveloped land, then push it through the local county or jurisdiction for approvals, develop the land to build then sell homes; a process that usually takes several years to complete. In this instance, builders/developers might have paid a premium for the land just as homeowners did for their homes during this time period.  Then how do builders compete today with resale homes? They have been including upgraded features such as enhanced kitchens, upgraded baths and expanded floor plans at no extra charge along with other financial incentives to cover closing costs. But another method was usually employed by large builders to anticipate market change.

Builders will enter into a contract to purchase land either with a developer or directly with a land owner while placing a large earnest money deposit. Larger scale builders have been known to “walk” from a contract and forfeit the deposit rather than be on the hook for over-priced land. If the builder’s efforts fail to renegotiate the purchase price or terms of a contract entered into several years ago, they will not hesitate to move on and look for other land opportunities at today’s price levels. On the flip side, smaller builders that are still in business today, bought land wisely and paced their construction, trimmed costs and adjusted pricing in order to survive the slow down.

In a nutshell… It is a great time to buy a home. New or resale.

 

Chris Weymouth, Director - REALTOR
Chris Weymouth, REALTOR®
The Weymouth Group at Keller Williams Select Realtors
theweymouthgroup@verizon.net
443-280-1922