Too Many Existing Homes Keeping the Housing Market Down?
One of the biggest issues in determining whether the housing market is ready to recover concerns the high number of homes that have been foreclosed upon, and how much they lost as far as their value. In some areas of the country, there are literally thousands of homes that are up for resale, and those houses are competing with new homes being built, whose prices are much higher, and being built in neighborhoods where other houses have lost their value during the recession.
The Commerce Department reported sales volumes this week, indicating that the volume of new homes had fallen .6% in May, while the National Association or Realtors stated that sales of previously owned homes rose 2.4%. With so many homes on the marketplace, at great prices, why would anyone want to build new homes?
The reality is that there are still a lot of people who want to be able to say they built the home they wanted to build, and were the original owners of that home. If the community is a new one, or a gated community, owners are also building safety and security.
Still, the excess of homes already available is causing consternation within the housing market community. A quote from Goldman Sachs, the investment banking and securities firm, was that there will be“stabilization in housing activity and residential investment, but no substantial rebound. The overall excess supply of housing remains enormous.” It’s also believed that home prices will probably continue to fall throughout the year, making existing homes more attractive, especially with the $8,000 tax credit that’s available, but having an impact on existing homes.
It’s probably the type of thing that’s led one residential real estate developer in Maryland to file for bankruptcy protection this week. PDC-Collingbrook LLC and PDC Loveless LLC of Columbia, both controlled by managing member Michael A. Carnock, founder of privately held PDC Inc., listed total debts ranging from $10 million to $50 million in their filings in U.S. Bankruptcy Court in Baltimore. Their assets include 113 1-acre housing lots in the Collingbrook subdivision along Route 50 in Bowie. The bankruptcy filing pegs their total value at $12.5 million. PDC Loveless lists assets including 29 half-acre housing lots in the Brandywine area of Prince George’s totaling $2.02 million.
The area where they mainly built homes is indicative of what the rest of the country, and other home builders, probably have to deal with. Prince George’s County’s market has the highest home mortgage foreclosure rate in the state of Maryland, with 1,293 filings in May, which was up 10.5% from April’s figure.
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When it’s too many existing homes on the market with all extra tax credit, foreclosures and other thing, that press down the prices so a new homes is to expensive today.
It is ALL about the amount of homes on the market, both new and existing. Basic supply and demand will tell you this. What is crazy is to see the difference in the absorption rate across the country. Some areas are pretty normal while other areas have 2+ years of supply.
Just a thought – the excess of homes means that there isn’t enough suitable demand. I say suitable since home ownership requires a lot of a person — but the real dilemma here is whether or not home ownership, in the traditional sense, is still part of the “American dream.” Perhaps demand is switching because it doesn’t make fiscal or economic sense for every person in the country to live in houses larger than they need, 25 miles from their employer.
In the UK we have seen a big rise in the rental market while people are trying to buy properties now while prices are low. It’s interesting to see how things are varying between countries.
At the beginning of the year California allotted $100Million toward a $10,000 new-home buyer tax credit. The $100Million is now depleted. Buyers lined up in droves to take advantage of the offer. Combined with the $8,000 federal tax credit for first-time buyers, this was an $18,000 cash rebate on top of the already reduced prices. This goes to show what a little incentive can do to stimulate the market for new homes. Hopefully California will find the money in the new budget to continue the program.
.-= Geoff@San Diego Real Estate´s last blog ..HVCC Kills San Diego Real Estate =-.