Real Estate Outlook: New Home Sales and Prices Decline

"December's small decline in new-home sales follows three consecutive months of gains and means the fourth quarter was still stronger than the third," noted Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. "The bottom line is that, while 2011 was the worst year for new-home sales on record, signs of gradual improvement began to emerge near the end of the year across a growing number of markets. This nascent recovery should continue to gain strength in the year ahead as more buyers take advantage of the very good deals that out there for newly built homes."

The NAHB remains extremely optimistic about the forecast for new homes in the coming year. They predict a rise of 18 percent in the number of new-home sales for 2012. This comes after a 7.3 percent dip seen in 2011 and the 2.2 percent dip seen December.  

The December dip is being blamed largely on the large 10.1 percent decline seen in the South. Both the West and Northeast saw substantial new home sale gains for the month.  

Mortgage applications were also down 2.9 percent from last week as well. The refinance share of activity declined slightly to 80.0 percent of the market, while adjustable rate mortgages rose to 5.6 percent of total applications.  

"The Federal Reserve surprised the market last week by indicating that short-term rates were likely to stay at their current low-levels until the end of 2014. Longer-term treasury rates dropped in response, and mortgage rates for the week were down slightly as a result," said Michael Fratantoni, MBA's Vice President of Research and Economics.  

While new homes sales and mortgage applications might be down, some of those would-be buyers are instead putting money back into their own homes. Remodeling activity, according to the NAHB, has risen again, now for the fifth straight month.  

Remodeling sentiment is now at the highest level in five years, sitting at a 46.6 on the RMI scale.

NAHB Remodelers Chairman Bob Peterson reported, "As more consumers remain in their homes rather than move in this economy, remodelers benefited from a gradual increase in home improvement activity, taking us to a five-year high. 2011 ended on a strong note for the remodeling industry."

The RMI reported higher market activity in two important categories: major additions 52.3 (from 45.2) and minor additions 50.1 (from 45.7). These remodeling homeowners may be waiting out a better time to sell when prices rebound.

The latest release from the S&P/Case-Shiller Home Price Index indicates that home values are still on the decline. Prices fell 1.3 percent for both the 10- and 20-City Composites in November from the previous month.  

"Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall. Weakness was seen as 19 of 20 cities saw average home prices decline in November over October," says David M. Blitzer, Chairman of the Index Committee at S&P Indices. "The only positive for the month was Phoenix, one of the hardest hit in recent years. Nationally, home prices are lower than a year ago."  

As of November 2011, average home prices across the United States are back to the levels where they were in mid-2003.



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