Sales Will Rise Again
(The U.S. real state market has been producing negative news for just about all involved participants, from buyers and sellers to investors, for about the past year.) Previously, buyers experienced a time when they could purchase a home and experience 25 percent inflation on it within the year, while sellers who already owned a home were in the fortunate position of making a 100 percent to sometimes 500 percent profit. Those days are over, but for how long?
Home sales in almost every region in the country have been experiencing worrying declines since the last quarter of 2005. California alone experienced a 30 percent decline in home sales from its July year-over-year mark.
Stubborn sellers had refused to lower prices in hopes that the market was going to rebound, but this was not happening. Buyers saw the opportunity to wait for prices to decline since there was an abundant supply of homes for sale. But sales would and will decrease until prices drop.
The September 27, 2006 article, “New-Home Sales Rise Unexpectedly As Durable-Goods Orders Decline” by Jeff Bater of The Wall Street Journal, explains how this situation has come true as home prices are beginning to fall, leading to a slight increase in sales.
“New-home sales unexpectedly climbed during August, breaking a string of three declines as the median price for a house compared to a year earlier was lower.”
“Sales of single-family homes increased by 4.1% to a seasonally adjusted annual rate of 1.050 million, the Commerce Department said Wednesday. July sales fell 7.5% to 1.009 million, revised from a previously estimated 4.3% decline to 1.072 million. Sales dropped 0.9% in June and 1.8% in May. Demand was flat in April.”
The declining home sales trend was expected to continue. A Dow Jones newswire survey of 25 economists indicated that August would produce a 2.5 percent home sales decline to an annual rate of 1.045 million.
This slight increased in sales is a direct relation to recent home price depreciation. “The average price of a new home decreased to $304,400 in August, down from a revised $314,200 in July -- yet above $295,000 in August 2005, according to Commerce.”
But prices just began to drop. They may have to continue decreasing in order for sales to report month-to-month increases.
“Year-to-year, sales were down 17.4% since August 2005 as the housing market softens. The National Association of Realtors reported Monday sales of previously owned homes fell a fifth month in a row during August even as the median price sank year-over-year for the first time since April 1995.”
Mortgage interest rates are also a major contributing factor to home sales. The higher the rate, the fewer amounts of people will be able to afford mortgages. Mortgage interest rates have been following the same pattern as sales, or vice versa. Rates were the lowest in history for a few years, until the past year when they rose 17 consecutive times. Then in August, they fell again and sales increased.
