Home Builders Desperate To Sell

(We recently received some good news from home builders concerning their tremendous supply of newly built homes, and that is that the inventory is moving. )

And this could all be contributed to one factor - Price cuts.

After months of sagging homes sales, home builders across the nation reported an increase in home sales last month.

But this seemingly good news could actually be some bad news for the housing market in disguise. Lowering the value of homes will get them sold, yes, but it could have damaging repercussions for the rest of the market as well.

An economic analysis written by North American Economist David A. Rosenberg for Merrill Lynch and posted on billarca.com, "The 'D' word sets in for the builders 'Desperation'" tells how desperate times call for desperate measures for home builders across the nation.

"New home sales surged 5.3% month-over-month in September on top of a 3.8% rebound in August. The inventory backlog got cleared to the tune of 1.9% and this helped slice the months' supply tally to 6.4 months in September from 6.8 in August and 7.2 in July."

Before all of these positive figures came in, home sales were declining rapidly, especially for these newly built homes.

Home building companies and developers were trying everything in their power to clear the backlog of homes on the market.

Then, desperation slowly started to set in.

The days of incentives were long over, and home builders soon realized the only way to get their properties moving was to lower the prices the old fashioned way.

They found that potential home buyers were no longer as interested in new kitchen appliance upgrades or an in-ground swimming pool; they wanted to see the cold hard cash in the form of a price cut. In fact, prices have been coming down at a rate of 33 percent since their peak in April.

Of course, companies are still handing out incentives left and right, but the smart companies have realized that if they really want to get their homes moving, they have to lower the price.

"How sales soared and stockpiles sagged so much was because the builders, facing the stress of slumping homeowner traffic and few bids on their properties for the better part of the past year, have become, shall we say, a tad frantic. Desperate times require desperate measures and median new home prices were cut 9.3% on the month and are now down 9.7% year-on-year - the steepest deflation since December 1970 (when, if memory serves us correctly, we were in recession)."

Although these price cuts will reflect positively on the sales of newly built home, they could be damaging to other homeowners, especially those who just bought a home, or those who are trying to sell.

"That the builders are now moving prices down to levels that will begin to clear the inventory is good news because it shows the market works. But the process of seeing residential real estate devalued could end up being painful for a whole lot of folks - like those 10 million households who bought an existing home since June/05 and are now under water."

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