Despite the fact that luxury home builder Bob Toll has told me over and over again that foreclosures don't compete directly with new construction, at least not his pricey new construction (which I don't buy for a second), the Monthly Sentiment Survey from the National Association of Home Buildershas some pretty strong words to the contrary.
The index held steady at the lowest level in a year and a half, even though some had predicted it would bump up a bit. It was the sentiment expressed in the index release that really caught my attention:
“In general, builders haven’t seen any reason for improved optimism in market conditions over the past month,” writes NAHB Chief Economist David Crowe. “Builders report that the two leading obstacles to new-home sales right now are consumer reluctance in the face of the poor job market and the large number of foreclosed properties for sale." Foreclosures do matter.
Buyer traffic has deteriorated in new construction, and another report out today finds that while home prices stabilized temporarily thanks to the home buyer tax credit, "leading housing activity indicators such as first-time homebuyer traffic, current homeowner traffic, and investor traffic all declined, indicating reduced homebuyer demand," according to research director Thomas Popik of Cambell Surveys (in conjunction with Inside Mortgage Finance."
“We’re in transition,” adds Popik. . “Individual homeowners listing non-distressed properties and mortgage servicers listing distressed properties are holding out for prices established before the end of the tax credit. Meanwhile, only a few homebuyers are willing to transact at these prices – and these are the transactions going into the averages. That’s why we saw such declines in traffic and volume in today’s market.”
While prices for regular properties are now flat (and we are awaiting another decline), prices for REO (bank owned inventory) are actually up an average 6.3 percent. Unfortunately banks repossessed a record number of properties in August, and we all know what more supply means for prices.