Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights housing starts and new home sales.

  • New home sales, which measure contract signings and not closings, fell modestly in August.  There were 295,000 units that went under contract during the month on an annualized basis.  The monthly figures throughout this year have been remarkably within a narrow range at or around 300,000.
  • The low figure does not necessarily reflect a low demand for newly constructed homes, but rather the lack of building activity.  If 10 homes are built, then at most only 10 new homes can be sold.  Homebuilding activity has been hampered by very tight construction loan originations, which unlike most mortgages, do not have government backing.
  • Whatever houses the builders are building are getting picked up by consumers because the inventory of newly constructed homes is at a 40-year low.  There are only 162,000 new homes available for sale.  By comparison, there was an inventory of 600,000 new homes for sale at the turning point from boom to bust in 2005 and 300,000 in most normal years.
  • Usually, the new home market comprises about 10 percent of total home sales.  Today, new homes account for only 5 percent.  Aside from the lack of inventory of newly constructed homes, consumers are enticed to the existing homes market where prices are more attractive.
  • NAR expects only 296,000 new home sales in 2011, before rising to 350,000 in 2012.

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