November 24th, 2010
11:14 AM ET

New home sales: Down 80 percent from the boom

Don't look to the new home market for glad economic tidings: Home builders had another dismal sales month in October, falling to just one-fifth of the sales rate during the boom five years ago.

New home sales dropped to an annual pace of just 283,000, according to the Commerce Department. That was down 8.1% from a slow September and 28.5% from 12 months ago when the annualized sales rate was at 430,000.

The sales rate is off nearly 80% from the housing boom peak of 1.4 million, set in July 2005. Sales have remained near historic lows this year despite very attractive mortgage interest rates that slash the monthly costs of homeownership.

Helping to depress home sales are stubbornly high unemployment rates, which result in fewer households being formed. Usually, household formation rises 1% a year or more as people get married, come to the states from overseas, and start careers. But the poor economy has meant that many grads can't find jobs, and so they move in with parents instead or double up with peers. Fewer immigrants arrive and couples delay marriage. All of those things diminish home sales.

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soundoff (6 Responses)
  1. Homer Simpson

    catch 22, housing mess got us here, how do you plan on getting out without fixing it? Its a stock market risk when you purchased, i was told when modifying my loan, thats why we wont adjust your principle, REALLY? Where was that approach when you bought my morgage and you stood a chance of losing money? Instead you cried and got bailed out by me, now your calling me irresponsible, take your over priced house and shove it, im buying my neigbors foreclosure for cash, see ya central banks! Never again! Hope you starve

    November 24, 2010 at 12:44 pm | Report abuse |
  2. Homer Simpson

    save your money and pay caash for a home, the banks will not give you a break, they are greedy, rich and getting richer, how about you? No, not getting better, mr. Obama promised to help me, but my bamk says its more profitable to deny me programs designed to help me? Not feeling you bro, you did exactly what you said would never happen on your watch, throwing money at the rich, hoping they will get full amd spill (trickle) down to me , but you did ! See-yaa stupid!

    November 24, 2010 at 12:53 pm | Report abuse |
  3. Homer Simpson

    anyone want to buy my house, i bought it for 108,500. My township says its worth 99,000. My real estate says about 55,-60k. Morgage co. Says i owe 108,000, i only owed 106 when i bought it over 5 years ago, i think they got themselves a house for 108k! Enjoy. I'll send you a potcard from my new house/nieghbors old house. fuk you flagstar, your unyielding approach bought you another overpriced house my gov. Will pay you for, what about the almost 60k ive given you, can i get some bailout?HA HA THATS A GOOD ONE!

    November 24, 2010 at 1:12 pm | Report abuse |
  4. teaPARTYdemocrat

    The problem is builders contruct new higher priced homes while average income continues to slide. They need to fix the current glut of houses on the market instead of new homes people can't afford. The builders in essence did it to themselves.

    November 25, 2010 at 1:06 am | Report abuse |
  5. Papa T

    The real root of the problem? Regulations made it more attractive to switch to a service economy instead of industrial. All industry got moved overseas. Now the service economy is like an eddy, eventually shrinking upon itself with no industry to keep it stable. Any one interruption stops the currents and it collapses on itself. The answer? Re- industrialize.

    November 25, 2010 at 7:57 am | Report abuse |
  6. DAVE GILBERT

    Retail Sales loves Real Estate

    Is a Mini Retail Sales Bubble in our future?

    The economy is bad and unemployment is high, yet folks are managing to increase their savings and what should be surprising to all is discretionary retail sales are very good. Why is this? Normally it wouldn’t make sense. One would think just the opposite.

    The current problems in Real estate may hold the clue. If anyone has taken a look at the real estate mortgage debacle as the possible reason for strong retail sales I have yet to read it anywhere.

    Let me explain. I am a real estate broker in California and have a reasonably good feel for what is happening in real estate as seen on a daily basis. There are presently 4.2 million homes on the market nation-wide , many of which are either in foreclosure or are in short sale status. There are another 2 million considered as “shadow inventory” (those delinquent on their mortgage) that will quite probably join the 4.2 million already on the market.

    It’s been my experience that most of those owners in short sale or shadow inventory status have the ability to stay current on the mortgage and are either still living in the homes and not making mortgage payments or are renting them out and pocketing the money while waiting for the short sale or foreclosure to run its course. This has created a ton of unnoticed temporary disposable income.

    Assume only one million of the 6.2 million homes fit this scenario. If each household is conservatively pocketing $1,000/mo instead of making their monthly mortgage payment we arrive at a number in the area of $1 billion spendable income EACH MONTH. That’s huge! Some may go into savings, but much of it will go to consumer electronics, apparel, etc. I’m no retail sales expert, but I would think $1 billion/mo would be a significant number.

    In the future, as the real estate mortgage problems level out as these delinquencies subside and if unemployment remains high, I predict we will see a significant reduction in consumer discretionary spending as this windfall source of income dries up.

    Regards,

    D in CA

    November 30, 2010 at 2:58 pm | Report abuse |