Housing Demand Continues to Be Weak

Ordinarily, the new- and existing-home markets work pretty much hand-in-glove, forming different parts of the traditional housing ladder and moving essentially in tandem (aside from the normal time lag between contract and closing).  But things are really different now, with record foreclosures putting people out of their homes and dumping those homes onto glutted markets at deeply discounted prices that only make builders’ lives more difficult, according to the National Association of Home Builders (NAHB).

Indicators of demand in the new-home market have been uniformly weak.  The Commerce Department’s estimates of new-home sales moved down substantially in both October and November, NAHB’s proprietary survey of large single-family builders showed ongoing weakness of gross and net sales in December, and NAHB’s broad-based Housing Market Index slipped to a record low in January (8) as builders continued to mark down their perceptions of buyer traffic, current sales and expected sales volume.

On the other hand,  sales of existing homes have been relatively flat during the past year, at least on a quarterly average basis, and sales of both single-family and condo/co-op units actually bounced up in December – reducing inventory levels as well as months’ supplies in both components of the market.

The stark differences from the new-home sales picture obviously are traceable to the rising foreclosure wave that feeds existing-home sales at fire-sale prices while detracting from the new-home sales side.  Furthermore, we don’t know how many of the foreclosure sales are to first-time buyers or to investors, or how long the latter category may stay off the market.