The Washington Post reports this morning that sales of new homes rose slightly in March:
WASHINGTON — Sales of new homes rebounded slightly in March, helped by better weather, but the gain was not enough to offset big declines in the previous two months.
The Commerce Department reported Wednesday that new home sales rose 2.6 percent in March compared with February, when new home sales had plunged to the lowest level in nearly seven years. New homes were sold at a seasonally adjusted annual rate of 858,000 units in March.
Not all the news is good, though, as the increase isn’t as big as expected:
The March improvement was just half what analysts had expected and still left the sales pace 23.5 percent lower than a year ago as the housing industry continues to go through a painful adjustment after an extended boom period.
Nonetheless, how to reconcile this report with yesterday’s reported drop in sales of existing homes ?
Here’s one theory. In this area at least, and I’m willing to bet it’s true elsewhere, the slump in the housing market has resulted in a situation where you can buy a brand new home for the same price as a comparably sized one that is 10 or 20 years old, or even lower when you factor in the incentives that builders are offering right now.
Given that situation, it’s not surprising that people who are serious about buying and in a position to do so would consider a new home over an existing one. Why buy someone else’s 20 year old dream home when you can build one of your own for the same price and not have to worry about dealing with their appalling color choices ?
I don’t think this necessarily means the market is rebounding, only that the people who are in the market are shifting away from existing homes to new ones.
April 25th, 2007 at 10:50 am
So you’re suggesting it’s similar to people who bought brand new cars in 2002-2003, when automakers were offering 0% financing and cash back incentives, because they knew a new car would be 0% and a loan for a nearly-new car would be 6.9%, and thus it made more sense to buy the car without 40K miles on it? I can see your point on that one.
April 25th, 2007 at 11:30 am
Brad,
I think that’s very close to what’s going on. I can’t speak for the rest of the country, but around here builders have dropped prices significantly from last year and are offering incentives ranging from tens of thousands of dollars toward options and closing costs to picking up part of a purchaser’s closing costs on the sale of their existing home.
If you’re seriously in the market for a house and you’re faced with that type of situation and buying a 10 or 20 year old house that’s starting to show signs of age, which one makes more sense to buy ?