New home sales in the US fell to the lowest point in six months, hitting close to 2.5% for a yearly total of 295,000. The median new home price for August 2011 fell almost 8% from the same month last year, marking a drop unseen since July 2009.
After the most dramatic fall in prices in a two-year period, homebuyers are seeking the cheaper option of buying distressed homes or previously owned homes with lower prices due to foreclosures.
Chief Economist for Action Economics Michael Englund told Reuters that the figures come as no surprise: "The number is pretty much what we expected. There is no news. The real take away, despite the financial market turmoil, apparently is that the housing sector can't get any worse. They have declined four months in a row, but we have a sideways trend in the quarter.”
US State estimates on demand were adjusted from under 300,000 to 302,000. Estimates according to economists range from 275,000 to 320,000.
The median sales price fell to just over $209,000, representing a year-on-year decrease of $17,500.
The number of houses bought dropped in three out of four regions in the US in August. The most significant fall was just under 15% in the Northeast. The only region to see a rise in sales was the Midwest, increasing more than 8%.
The number of new houses for sale reached a near half-century low in August, with just over 160,000 new properties on the market.
Buyers Turn to Existing Homes and Distressed Properties
As the market for new homes declines, the market for previously owned properties is moving in the opposite direction, with sales rising almost 8% in August. While this represents a five-month high for existing home sales, at a yearly rate of over 5 million units, the median price is down more than 5% year-on-year.
Almost 30% of transactions involving previously owned homes were cash sales. Distressed properties accounted for more than 30%.
In 2010, the sale of existing homes represented around 90% of housing market activity.
Lagging Housing Market Slows Economic Recovery
Property market prospects are not brightening, with economist estimates from MacroMarkets LLC set at around a 1% annual increase over the next four years.
The less healthy the housing economy becomes, the slower the US economy will recover from the economic recession. Throughout the housing boom, housing represented more than 6% of gross domestic product; this rate has fallen to under 2.5% at present.
In a move to stimulate housing sector growth, the Federal Reserve is endeavoring to bring down the expense of long-term borrowing. It is putting a $400 billion program into action to encourage longer-term securities and plans to plough earnings from maturing mortgage and housing agency bonds back into the mortgage market.
Thirty-year mortgage rates stand at a low of at least 40 years thanks to Federal Reserve policies.
Key Statistics – US Real Estate Market August 2011 (source: Freddie Mac)
- Yearly mortgage interest rates are costing borrowers $130 billion less now than in 2008.
- US house prices were 25% lower in June 2011 than during the housing boom five years earlier, according to the Freddie Mac House Price Index.
- Interest rates on 15-year fixed rate loans hit 3.5% in August 2011.