New Home Sales Plummet

A number of statistics came out this week on housing and they are all bad. Existing home sales are down. Existing home prices are down. New home sales are down. New home prices are down. No area of the country and no segment of the market seems to be running counter to the heavy downward trend.

The Census Department reported today that sales of new single family homes in January were down another 10% from December and down 48% from January of last year. The seasonally adjusted annual rate was just 309,000. That's less than half of the 776,000 average rate for 2007 and down about 70% from the 10-year average (1998-2008) of 992,000 million new single family homes per year.

Let's break it down by price range. In the following chart, you can see that new home sales at all price levels below $400,000 are down.

But the luxury end of the market is especially down. Many home buyers looking at homes priced at over $400,000 need "Jumbo" mortgages. The next chart illustrates how far the top end of the market has fallen.

Many homes over $400,000 are considered "custom homes" and are built by small, independent builders who normally enjoy a comfortable profit margin. These small builders are getting hammered in this market. The profit margin is gone. Many new homes are being sold at a loss, if they can sell at all. Few people are shopping for new homes. It doesn't pay to staff a sales office. Most showings are by appointment only. If builders can find an interested purchaser, cancellations are high because move-up buyers can't sell their old homes. As fast as builders have tried to cut inventory, sales have dropped even faster. The average new home for sale has now been sitting empty for more than a year.