Mid week we learned that sales of new homes were up quite a bit. That led the media and lots of blogs to speculate that perhaps we had hit the bottom of the housing price correction. They gleefully looked to the Friday resale numbers.
Then on Friday, the resale numbers showed a further decline in housing resales.
Collectively, they exhibited the virtual “confused hamster” look. They were perplexed. How could this be?
In a newsletter article earlier this year, I predicted this would happen.
Builders can’t sit on their inventory forever. They have to sell what is currently in their pipeline or drown in carrying costs. They are in a much better position to offer concessions and upgrades than the average seller and they are willing to accept little or no profit and sometimes even a small loss to reduce their unsold inventory. The have another problem too, they are builders, they either build or lose their crews and go out of business.
So, it is likely we will continue to see this incongruity in the housing sales for a while. Builders have a good bit of current inventory they have to sell and they are going to be forced to start new construction in some manner just to survive!
Smart investors are working with the builders because that is where some really good bargains are to be found now. There is an investor in my area who is working with a builder of luxury homes to build duplexes and quads for him. The construction is better than you typically find in that part of the market and the costs are very reasonable. The builder is happy because he can keep his crews and make a small profit. The investor is happy because they are getting a great bargain on a good performing long term rental property.
So, look for resellers to continue to be squeezed but look for the builders to do what they have to do to survive.
We are going to see this type of split in the housing numbers off and on for quite some time.
