Home Builders Struggle to Compete with Foreclosures and Short Sales

According to the Associated Press:

“Builders are struggling to compete because foreclosures are forcing down prices for previously occupied homes. The median price of a new home was about 34 percent higher in March than the median price for a re-sale. That’s more than twice the markup in healthy housing markets.”

Builders’ outlook for homebuilding was a very low 16 for the month of May which is far below the benchmark of 50.  Any amount below 50 is considered negative.  Also, 118 out of 153 metro area experienced a drop in median prices. 

Consumer sentiment is also low as future homeowners hold out in anticipation of lower prices. This is another phase of a deflationary spiral.

Las Vegas has been ground zero in the housing crisis. In a Bloomberg interview, Las Vegas mayor Oscar Goodman said:

“We’re going to make lemonade out of this ‘crisis’.. by promoting our foreclosures here, and show people who are freezing to death in the middle of the country, and having the worst winter imaginable, that they could come out here [Las Vegas] and buy a home for 1/3 of the cost of 5 years ago and have a wonderful quality of life.”

Currently, we are in the second dip of a double-dip slump in housing. Many houses sit vacant despite the lack of homebuilding going for the reasons stated above. Nationally, housing prices are about at their low since the housing slump started. The rebound created from government stimulus and programs is over which is why the slump has resumed. It will take years for the market to correct because new households need to soak up the excess inventory.

In addition, the problems with bank foreclosures having a process that is too slow still persists. Many mortgages were not handled properly from the beginning which has caused a huge paperwork mess.  Now, the foreclosure process takes even longer as lenders attempt to sort this out.

The housing market is mainly supported through Fannie Mae and Freddie Mack. It will be very interesting to see what the government decides to do with them. These entities alone are propping up the market because they currently consist of almost all the new loans being written.  Without them, financing a new home would be almost impossible.  Banks don’t want to finance residential real estate and hold the loans.

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