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New home sales data for May shocks the real estate industry



New homes versus existing homes

In contrast with existing home sales which appear to be stabilizing, the new home sector is experiencing a decline. Just yesterday, it was announced that housing starts are down 17.2% (the slowest pace since May 2009), new home production is down 10% (the slowest pace since December 2009) and permits are down 9.9% in May.

None of these data points even come close to the disastrous news today from the U.S. Census Bureau revealing that new home sales plummeted 32.7% in May after the expiration of the tax credit, shattering economists’ projections for a slow month, but this dip is the lowest on record since the government began keeping track of this data in 1963. To give it some perspective, the previous record held was in September of 1981.

Is it a national or regional problem?

This 32.7% plummet is unfortunately spread out across all regions with the West being hit the hardest, having declined 53.2%, followed by the Northeast which dipped 33.3%, the South declining 25.4% and the Midwest dropping 23.9%.

The historic drop has left the industry with a 5.8% increase in months’ supply, ending May with an 8.5 month supply of new homes. This inventory spike, given the newly tempered and not overly ambitious nature of home builders is surprising to many forecasters.

“The big drop-off in new-home sales this May emphasizes how effective the tax credit program was in bringing home buyers back to the market while it was in existence,” said the National Association of Home Builders’ Chief Economist David Crowe. “Because many buyers moved quickly to take advantage of the tax credits, sales that would have taken place in May or June were likely pulled forward to meet the program’s deadline – which is why we have been projecting softer sales numbers for the second quarter. But once this ‘hangover’ subsides, we do believe that the improving economy, rising employment, excellent mortgage rates and stabilizing home values will be strong incentives that will encourage home buyers to return to the market.”

Not all agree with this sunny sentiment

Although the current scuffle over tax credit applicants not being able to close transactions by the June 30th deadline, the Senate may save these buyers and approve an extension for September 30th to keep these buyers in their current transactions (regardless of whether industry insiders agree that this is a healthy move or not).

The Real Estate Bloggers columnist Tom Royce said, “What has analysts and the industry nervous is that if the contracts signed in anticipation of getting the home owners rebate do not close at the rate expected, it could send shockwaves through the industry. So many homes are sold now on a contingency basis. This means the home I want to buy can not close until I sell my home. If contracts start to fail, it could have a cascading effect throughout the industry and homes will be returned to the market, without the benefit of the homebuyers tax credit.”

Anika Khan, an economist at Wells Fargo told CNN Money, “Clearly, the lack of a tax credit had a lot to do with it, and it’s going to be a bit of a bumpy road ahead as we get a few more months of payback.” Khan expects home sales to remain depressed through the third quarter as home construction continues to contract and lending standards remain tight, but that sales should pick up slightly in the fourth quarter. Although, she added, we are still years away from a normal level of new home sales.

As several Agent Genius writers have mentioned in the past, a recovery in unemployment may be the only true key to an overall real estate recovery. Even if existing home sales are recovering, the new home sales sector is a major part of the overall health of the industry, so we will continue to track both in hopes that Khan’s projection that we are “still years away from a normal level” will not come true.

CC Licensed image courtesy of globetrotters via

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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  1. Joe Loomer

    June 23, 2010 at 8:08 pm

    Unfortunately – at the micro level – our area is now flooded with $60-$70 sq ft new homes due to one national builder coming to town and lowering the standard but throwing in the eye candy (stainless steel and granite counters). Many local builders lost everything, and then just up and quit. The bigger of the small local fish have now been forced to compete on the same level, passing on the cuts to local contractors and lowering their own standards. Net result is subdivisions begun in the mid 2000 era are soon to see massive appraisal problems due to new floor plans being built at $20-$40 per sq ft cheaper.

    Worse – the national folks brought their own contractors, creating no jobs.

    New construction in our area showed an increase year-over-year in 2009 for the first time since 2003. It’s about to head south again – in a hurry.

    Navy Chief, Navy Pride

  2. Ruthmarie Hicks

    June 23, 2010 at 11:16 pm

    Although there is some new construction around my area – the bulk of it is hangover from the end of 2005-2006. Most of this was in the high-end luxury sector – particularly luxury condos. One of the problems that I have seen is that builders in the NY area (20 miles north of Manhattan) just wouldn’t take that price hit. Even now – some are sticking to their guns on price. I realize that they have already come down considerably but COME ON GUYS!!! It’s not going to get any better. The longer you wait – the worse it gets.

    A couple of weeks ago after endless back and forth on a new high-end condo – the listing agent said “You must understand that the builder needs to maintain the integrity of the complex and can only compromise so much.” HUH??? You came down $5k on a list price of nearly $550k – which btw – is highway robbery for a 1 BR condo in this market. Your complex has high maintenance fees as well as very high taxes and the units are more expensive than some of the entry-level homes in the area – which would fly with a 2 BR unit but not 1 BR. Also, how exactly are you expecting my buyer to get financing – especially since they are less than 70% occupied? My client’s purchase would put the complex OVER that 70% – which would make selling future units easier. We are not asking for the moon – just something half way reasonable.

    For those builders who are willing to negotiate price – and some are – the inventories are shrinking. It took a long time to get them to that point and I wish the other builders would do the same. These units are clogging the market and buyers that are holding out for “brand new” won’t pull the trigger. I just hope that by the time these builders come around, interest rates will still be low enough for these buyers to actually buy.

  3. BawldGuy

    June 24, 2010 at 11:36 am

    >…a recovery in unemployment may be the only true key to an overall real estate recovery.

    Isn’t the real trillion dollar question what the catalyst will be for a return to low unemployment? That catalyst will be what it’s always been — lower tax across the board, including business & cap gains. Once that happens, jobs will return. This was proven by JFK, Regan, and W.

    No tax cuts, just tax hikes? Redecorate your financial bunker, go for cash flow, and used extra cash to eliminate debt.

  4. Mark Jacobs

    June 24, 2010 at 1:33 pm

    Unfortunately – at the micro level – our area is now flooded with $60-$70 sq ft new homes due to one national builder coming to town and lowering the standard.

  5. smart home

    June 24, 2010 at 2:35 pm

    I don’t know why anyone in the industry or especially the politicians are surprised that sales have plummeted after the tax credit expired. I think, the tax credit should be extended for at least the next 2 years, so that the market has time to stabilize.

  6. Jim Gatos

    June 27, 2010 at 7:28 am

    In spite of this crazy market, I have a builder friend of mine who has been building homes on “Spec” for over 25 years. Can’t build a single home now because no bank in the area wants to finance for “spec” building. Now he is forced to get cash from other sources. This is someone who NEVER had a loss, ever..

    There’s another reason why the new construction market has gone to hell..

  7. Nick Nymark

    July 30, 2010 at 8:08 pm

    Around here in Fargo North Dakota, Moorhead Minnesota, and West Fargo North Dakota I think New Construction & Existing home sales are still doing well. Feels good to be doing business here in this area.

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Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?



Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.



aging housing inventory

aging housing inventory

The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.



zillow move

zillow move

Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub,, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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