Good News Bad News on New Home Sales

by Tom Royce on January 27, 2011

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What do you want first, the good news or the bad news regarding new home sales for 2010?

Good news? Great. First 2010 is over. That is the best news.

The other good news released this week is that new home sales jumped 17.5%  to a seasonally adjusted 329,000 homes for the month of December according to the National Association of Home Builders. They did preface that most of the increase came out of the west, which gained at a 71% rate, and most likely will have to be adjusted.

New Home sales were down 5.0% in the Northeast and up 3.2% in the Midwest and 1.8% in the South.

Now for the Bad News:

Sales for the year 2010 were down 14.4% for the year and ended up at 321,000 homes. This was the lowest number of new homes sold in the United States on record in the country. We started keeping track of new home sales in 1963…

New home sales construction is also at a record low rate. There are only 191,000 new homes in inventory nationwide. For reference, in the heat of the bubble, there were 528,000 new homes for sale in January, 2006. 2005 saw 1.28 million new homes sold.

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So what does this mean?

Builders are doing the right thing. Until the market returns it is crazy to expose yourself to building homes on spec. My guess is that most of the homes being built right now are on contract and those contracts are much tighter than in 2006.

If you are looking to buy land this is probably a great time, prices are low and demand is weak. Eventually new home construction is going to come back and getting your raw land, or even partially completed properties, will significantly lower your cost basis.

Otherwise, the construction industry is just in a waiting mode for things to settle down.