Luczak Group - The Blog

Information for happenings in the Real Estate Market in the Pikes Peak Region... and some things we just find interesting!


New Home Sales Stuck at Rock-Bottom

While new-home sales rose from a depressed level in September, they’re still really, really low.

And home builders continue struggling. What a change from earlier this year, when builders were snapping up land in preparation for a recovery expected by year end. But those sales gains came as the government offered buyers a tax credit of up to $8,000. Since that offer’s April 30 expiration, builders have struggled to find stability without government support.

September’s new-home sales climbed 6.6% from a month earlier to a seasonally adjusted annual rate of  307,000 the Commerce Department said Wednesday. When compared to a year earlier, the rate tumbled 21.5%. September saw the fourth-worst monthly reading since 1963, though these statistics are notoriously prone to later revisions.

Regardless, sales “remained stuck at near rock-bottom levels,” said Patrick Newport, an economist with IHS Global Insight.

Indeed, shares of home builders fell following the news. Lennar Corp. recently declined 2.28%, while  Hovnanian Enterprises Inc. lost 1.9%.

The report wasn’t entirely negative. The median price came in at $223,800, up 3.3% from a year earlier. The number of unsold new homes fell to the lowest level since 1968: September’s supply registered 8 months,  down from 8.6 a month earlier. Six months typically indicates a healthy balance.

Builders face continued headwinds including elevated unemployment — a figure some expect to climb into the new year — and depressed housing values. Home prices, already down dramatically from the peak, slipped in August, according to the S&P Case-Shiller home-price indexes covering major metro areas.

Meanwhile, some banks have suspended the foreclosure process in recent weeks, which threatens to keep the glut of foreclosed homes on the market and further delay recovery.

Some industry watchers say the situation could eventually help builders, but that hasn’t happened yet.

“So many buyers have been burned so badly that housing demand is likely to remain depressed for years,” wrote Mike Larson, a real-estate and interest-rate analyst at Weiss Research. “Competition from cheap, distressed, used homes is also working against the home builders.”

The sector’s turmoil is apparent in builder’s quarterly results. Late Tuesday, Standard Pacific Corp.  said it made a profit of $0.02 per share in its third quarter, an improvement from a loss of $0.10 a year earlier. But closings fell by a third and orders plunged nearly 40%. The Ryland Group, which reports results late Wednesday, is expected to show similar declines.

“It appears that the nation’s economic recovery may take longer than many anticipated,” Ken Campbell, Standard Pacific’s chief executive, said in the release.