Figures posted by the United States Commerce Department on Monday showed new home sales in the country increased 1.3 percent in October to a seasonally adjusted annual rate of 307,000. The number represents a small increase from September numbers, which were revised downward from 313,000 to 303,000.
Statistics show that new home sales are on pace to reach approximately 301,000 for 2011, which would be significantly less than the 323,000 new residential sales in 2010 and the lowest annual number since home the 1960s.
Foreclosed properties are still a popular purchase option for home buyers, which affected numbers for existing home sales in October, which were up slightly according to a report published by the National Association of Realtors last week. With some homes going for rock-bottom prices thanks to an abundance of unoccupied homes in some areas, new home sales may continue to be stagnant into 2012. The national unemployment rate of 9 percent also weighs heavily on consumer optimism and could point to continued frugality as those looking to purchase homes opt for lower priced properties in lieu of new homes.
On Monday, Michelle Meyer, a senior U.S. economist at Bank of America Corp. () told Bloomberg.com, ““Demand for new construction remains weak. “Builders are still competing with the significant overhang of existing homes for sale. Overall, the housing market remains out of balance, with much more supply than demand.”
Foreclosed homes affect supply and demand
The opinion expressed by Michelle Meyer is echoed by many market analysts and experts who believe a significant recovery in the number of new home sales in the U.S. is unlikely to take place in the following year. Apart from an overload of abandoned homes in many areas throughout the country, the over supply of foreclosed properties by region can greatly reduce the sale price of properties in the immediate and surrounding areas; resulting in a domino effect that could send residential home prices to new record lows.
New home buyers are generally less tempted to purchase homes in neighborhoods with many foreclosed properties due to many factors including: decreased property value, lack of maintenance of surrounding properties and the increased risk of the area becoming a “ghost town” if foreclosure trends continue.
Housing and the Fed
A debate is currently underway on whether the Federal Reserve should purchase additional government bonds and mortgage backed securities in order to provide a boost to the nation’s housing market. The potential move could serve to stabilize home prices but some fear that added bond purchases would only add to the country’s inflation rate.
Sovereign debt issues are already in the headlines throughout Europe as many countries in that region appear to have overextended their credit, resulting in a new round of possible credit downgrades and a scurrying of activity by the European Central Bank to provide liquidity to struggling financial institutions. If the same issues spread to the U.S., some believe the country may experience a collapse similar to what was experienced in the financial meltdown of 2008.
New homes and the economy
Despite new homes only representing a fraction of all property purchases, those who move into new homes play a key role in the nation’s economy. According to figures published by the National Association of Home Builders, each new home that is built results in the creation of three jobs in a year along with $90,000 in tax revenue. However, the construction of new homes does not always mean that those properties will immediately be purchased – in turn resulting in a backlog of unoccupied homes that can be witnessed in neighborhoods in several regional areas of the United States.
Given the current sentiment of potential home buyers and global market uncertainty, it could be well over a year before home sales completely recover. MarketWatch.com reported on Monday that the Commerce Department figures had a weakening effect on the U.S. Dollar, which was down slightly in early morning trading.