New Home Sales Plummet -- But Prices Up?!

I’ve never claimed to be an economist (just play one on TV), but I have held a few yard sales in my time, and so this I know: If something isn’t selling, lower the price.

I was pretty taken by the 9 percent drop in new home sales reported by the Dept. of Commerce today, but I was pretty shaken by the pricing data: The price of a new home actually rose month-to-month from $229,500 to $239,100.

How can that be?!

I know the builders are throwing in incentives and helping with financing, but I also know from the big public builders’ spreadsheets that they are also dropping prices. I called an analyst.

The analyst -- whom I can’t name because I caught him on his cell phone in the car without proper clearance through his communications staff -- said you have to pay attention to the regional data.

The Commerce Dept. uses a pretty small sampling to come to these numbers, in the first place; in the second place, sales fell most steeply in the Midwest (down 27.6%) and actually bumped up a little bit in the West (up 4%).

Think about it: Home prices in the Midwest are far lower on average than they are in the West -- which means that if far fewer new homes are selling in the Midwest than in the West, that’s going to skew the median price for the nation higher.

But then I heard another reason from a local builder in Virginia. He claims that while the big public home builders need to unload the properties from their balance sheets, many of the smaller private builders, who have cash in reserves, feel that they would rather not give their inventory away.

Their strategy is that if you have the cash, hold the house for as long as you can. That way you don’t lose as much.

This may be a little far-fetched, but there’s this gorgeous new house in Chevy Chase, Md. that I’ve had my eye on for almost a year now. It’s been sitting on the market, empty, for several seasons, and the small private builder has only dropped the price once -- and only by about $10,000 (the house is priced over $2 million)...

Of course, I was privately hoping the price would come down far more significantly, cable wages being what they are. I guess I shouldn’t hold my breath.

Questions? Comments?