New Home Prices on the Rise, Inventories Shrink

June 24th, 2011

The median sales price of new homes rose to $222,600 in May, a 2.6 percent increase from April, and the first increase to new-homes’ median sales price since December of last year, the Commerce Department reported Thursday. New homes are 30 percent higher than the median sales price of existing, resale homes, which is double the normal markup, analysts say.

Foreclosures and short sales–which are selling, on average, at a 20 percent discount–continue to hamper the new-home market, making it difficult for builders to compete against the ultra low prices.

While the prices of new homes were on the rise, inventories of new homes continued to shrink, with inventories falling to its lowest level on record (166,000 homes). Economists noted that at the May sales pace, it would take 6.2 months to clear the supply of homes off the market.

Overall, fewer people purchased new homes in May as the new-home sector continues to face one of its worst years, the Commerce Department reported. New-home sals dropped 2.1 percent in May to a seasonally adjusted annual rate of 319,000 homes. That pace remains far below the 700,000 homes a year that economists view as healthy for the new-home sector.

Regionally, sales of new homes were mixed. For example, in the Northeast, sales of new homes dropped nearly 27 percent and 3.5 percent in the West. However, new home sales increased 2.4 percent in the South but remained flat in the Midwest compared to April.

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