“Really Good News” about Nationwide New Home Sales, Local New Home Sales still correcting

by Coldwell Banker Evergreen Olympic Realty, Inc. on July 27, 2009

New home sales jumped 11% in June, well above the level of growth expected by all 63 economists who made predictions. A report today by the Department of Housing and Urban Development details that newly constructed home sales rose to an annualized rate of 384,000. The consensus projection was just 352,000 sales.

Perhaps a show of how low our expectations are, the sales are still 21% off June 2008 numbers. Moreover, the longer term trend shows roughly 950,000 sales per year. So we are still a long way off from more normal times.

Still it is good news as the troubles in home construction has been a big drag on the economy. Therefore, this uptick in activity is a nice signal that we might be trending back in the right direction. The nationwide inventory of unsold new homes dropped to an 8.8 month supply, which is down from 10.2 months in May.

CNNMoney.com quotes Peter Morici, a University of Maryland economics professor, as saying the housing numbers “is really good news. Considering what’s going on in existing home sales, with all the foreclosure activity sending down home prices, for new homes to jump like that is a good indicator that the economy is bottoming out.”

Housing is a leading economic indicator and much of the news over the past three months is certainly indicating more positive trends.

At the local level, Thurston County home builders have pulled construction levels way back from the peak of the housing boom in 2006. However, our market did not start correcting until 18 months after the rest of the country. That means we still have some adjusting to do.

The standing inventory of platted or preliminarily platted property remains significant. Banks are just now starting to take back tracts of land and will be looking to sell them to builders and developers in the next six to nine months.

What the buyers do with those properties will greatly influence our market for the next three to five years. Based upon today’s market, those properties are worth just a fraction of what was lent on them. If sales are structured at realistic values, much of that land can simply be land-banked to wait for a time that more housing stock is needed.

The temptation will be to start building on those properties soon for risk of losing the entitlements and the investment made to get them. To be sure, there are some plats that could be brought to market now. Some areas in our community are still under-built with certain types of housing, but most areas are way over-served. If builders and the property owners take care in distinguishing those opportunities, we will see a healthy flow of new houses to the market.

Overall, our hope is that the frenzied race to build on any old piece of land, regardless of market need, is laid to rest and that a more sustainable pace of building occurs. The posture of the credit markets and the home builders seems to indicate we are heading in that direction.

Our market is down to a 7.6 month supply of homes for sale. A six month supply is considered balanced. Even though we look better than the rest of the nation as a whole, the market is not completely healthy yet. However, the trend is certainly moving back toward balance and a more sustainable future. That is really good news for our local market.

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