New home sales up 11%

Wow, that sounds like encouraging news for the economy, doesn't it? Up 11% from May to June. The media is trumpeting this horn but is the tune really all it's cracked up to be?

Of course it's not. This June was better than May but why compare it to May? There's always a difference from month to month. Could be the number of days could be that there are always more sales in June due to the summer bounce. When comparing sales numbers, year over year is a more accurate measure of the health of the market. So how did those new home sales stack up against last June? Down 21%! There's the real headline, "New home sales fall 21%".

Oh and I might have forgotten the best part of this sales spin. There's little mention of the fact that the median price of those new homes fell a whopping 13% in ONE MONTH! May median was $219k and the June median fell to $206k. It's little surprise when you factor in the buyer incentives, especially here in the west. Buy a new home in Cali and you can get $18k in credits. With FHA offering 3.5% DPs and the government giving up to $18k in credits it certainly makes new homes more attractive. You also don't have to fight the mob trying to get the REO's.

Home builders are still having a hard time competing with the prices of foreclosures and REO's. It's simply too expensive to build a new home and get the price in line with the REO's. Part of the reason is the McMansion syndrome. Now days everyone thinks they need a 3000 s/f home. Well it's costs a lot to build a home that size. If the builders want to compete they will need to start building to a price point that is competitive. Many of the builders are saddled with expensive parcels of land. Unless they write the value down, or default on them they might never be able to put an affordable house on that land. I'm sure over the next few years builders will start to downsize the homes they are building. It happened in the early 90's and I see it happening again. KB in Perris started building smaller homes. Putle dropped the price at Stellan ridge $100k....or did they. Well actually what they did was add 2 new smaller models. The price of the other homes didn't really change.

I'de really like to see new homes selling again. That would really go a long way to pull us out of this economic quagmire. But the unfortunate truth is that new home sales are the lowest they've been since the early 80's. It's nothing price can't fix though!