New-home Purchases Fall, 2011 Worst Ever for Sales!

This is a hopeful AP story that I have edited in an effort to remove its reality cone.

Thanks, Mimi!

AP Photo

Fewer people bought new homes in December. The decline made 2011 the worst year for new-home sales on records dating back nearly half a century.

The Commerce Department said Thursday new-home sales fell 2.2 percent last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.

The median sales prices for new homes dropped in December to $210,300. Builders continued to slash prices to stay competitive in the depressed market which gets worse daily as the flow of foreclosures and REO properties continue onto the market at fire-sale prices. Still, no one is buying.

Still, sales of new homes rose in the final quarter of 2011, supporting other signs of a slow turnaround that began at the end of the year. NOT!

Sales of previously occupied homes rose in December for a third straight month. Mortgage rates have never been lower. Homebuilders are slightly more hopeful because more people are saying they might consider buying this year. And home construction picked up in the final quarter of last year.

“Although this decline was unexpected, it does not change the story that housing has likely bottomed,” said Jennifer H. Lee, senior economist at BMO Capital Markets. I totally disagree with Ms. Lee and I have a copy of Bank of America‘s internal analysis published in mid-November titled: “Housing: More pain, then gain” which predicts 2015 as the bottom, barring further global economic volatility. I would tend to believe two Merrill Lynch economists over a BMO Capital economist.

Ian Shepherdson, chief economist at High Frequency Economics, said easier lending requirements, historically low mortgage rates and improved hiring all point to consistent, albeit slow, rises in sales in the coming months. What improved hiring? The minimum wage jobs that were created over the Holiday season? Last time I looked, you needed to earn more than $16,000 a year to qualify for a new mortgage.

“A sustained rise in new home sales is imminent,” he said. “Homebuilders say so too, and they should know.” Homebuilders, HAVE to begin building or lose crews and capital and credit lines. Would you lend money to a builder who plans to build $240,000 homes in a neighborhood that has an inventory of $180,000 homes and is continuing South? No? I didn’t think so.

Hiring is critical to a housing rebound. The unemployment rate fell in December to its lowest level in nearly three years after the sixth straight month of solid job growth. Of which kind again? I contend that this unemployment measure is the result of some part-time and min wage hiring combined with people simply disappearing from the job market and giving up, combined with some service level jobs that pay $10-14 an hour. This isn’t going to change the trajectory of home purchasing any time soon.

Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it’s been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst. No kidding.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders. Even if they were to start 30,000 new homes tomorrow, that only creates 90,000 jobs which isn’t enough to make a dent in the unemployment rate. According to Calculated Risk ( it would take 267,000 new jobs PER MONTH for a year to get the unemployment rate down to 8%!

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales – when lenders accept less for a house than what is owed on the mortgage. Well, that flow is just now kicking into high gear as the 17 banks that Washington held up their foreclosure processes until September of last year for robo-signing investigations are just now finishing up their work converting defaults to foreclosures and clawing back those homes to REO status. If you think it has been bad so far, wait until you see this year unfold.

Builders ended 2011 with a third straight year of dismal home construction and the worst on record (a HALF-CENTURY) for single-family home building. But in a hopeful sign, single-family home construction, which makes up 70 percent of the market, increased in each of the last three months. There are no hopeful signs folks, and wait until Greece craters in March and the Euro falls apart. Much more fun to come.


About Steve King

iPeopleFINANCE™ Chief Operating Officer. Former CEO of Endymion Systems, Inc. a $36m Information Systems Services company. Co-founder of the Cambridge Systems Group, the creator of ACF2, the leading IBM Mainframe Data Center Security product; acquired by Computer Associates. IBM, seeCommerce, marchFIRST, Connectandsell alumni. UC Berkeley alumni. View all posts by Steve King

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