Wednesday, October 28, 2009

New home sales down - what's up with real estate!?

For you news junkies out there it seems like you can't win. Yesterday the Case-Shiller index tells us that the major metro areas are doing well and today we hear that new home sales are down. When the good news comes the market goes up a little bit. Today's bad news arrives and the DOW drops over 1% and the NASDAQ drops 2.6%. Why?

Well, it's a classic case of "sell the news" from a stock market perspective combined with the fact that the market has pretty much been on a march to break the 10,000 point mark (DOW) for months. However, what it means for the local real estate market is...very little. New homes are a small portion of local inventory.

The Bay Area has very few new home projects and several projects were stopped due to funding and market issues. There is only one major new development in Los Altos (Peninsula Real) and that has sold over 50% of its units. In Mountain View there are several small and medium sized projects that have inventory still available. Why are buyers stepping away from new homes?

Simple, the $10K state new home tax credit has been used up for a while and the $8K federal tax credit is going away unless it gets extended. Those have been driving a lot of sales. Current legislation may extend the federal credit to March with a phase out past that. If that happens, local new home sales will recover.

If not, local demand is still strong and inventory is dropping. With as little new home inventory as we have around here I don't see this statistic changing much in the local market.

Here's a link to the story on
New home sales fall 3.6%

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