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David J. White's Blog

By David J White | Agent in 90266

New Home Sales Plunge - - Wait, I Thought They Were Up!

A recent post on my blog at www.BeachCityDigs.com told of how home sales were considerably up in May.  In this one, I'm relaying a report by the Wall Street Journal that home sales were considerably down in May.  Head spinning yet?

Both posts are true, revealing the difficulty in understanding the housing market by merely glancing at headlines.

The posts refer to different measures:

  • Sales of existing ("used, gently or otherwise") homes were indeed up 19.2%
  • Sales of new (previously unoccupied) homes (often mistakenly interpreted as new sales of existing homes) were down by 32.7%.
Why would this be the case, and which if either should you care about?

Well, new home sales are certainly good for the economy, but they are a small percentage of the total inventory of houses.  But besides pure levels of buyer demand, new home sales are greatly dependent upon the number of new homes that builders are building!  So if homebuilders are not building as many homes as before (they aren't), or if special financing isn't being offered in this market, then that measure will tend to decline.  You should care about this if you are a homebuilder, or invest in homebuilders, or are an economist, or live next door to an enormous new tract offering big discounts and 0% financing..Personally, I care much more about the number of new housing permits issued than the number of new homes sold.

Existing home sales have to do with the natural turnover of the nation's inventory of homes, whether built in 2009 or 1909, so long as they've been previously occupied.  This is a much more telling economic indicator with respect to the housing market.  You should care about it if you're a current or prospective homebuyer or seller!  But like any measure, I wouldn't worry too much about it on a month to month basis.  Because it may or may not be "seasonally adjusted," and it may or may not be affected by factors as simple as a different number of days in the month!

More info: New Home Sales Plunge - WSJ.com

For the real story, you need local data.  Ask your Realtor! -David

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