Friday, September 28, 2007

Unsold Homes Increase 2,000 per Month


The National Association of Home Builders reported on Thursday the 27 of September, that the level of newly constructed unoccupied homes in the United States now stand at 200,000. They also reported that about 2,000 new homes are added to inventory every month. Based on current inventory levels there is about 8.5 month of sales on hand.

Let us look at one city and see what is happening in the residential real estate market. During 2005 and 2006, one-half of all home and condominium sales in Las Vegas were to speculators. In the third quarter of 2004, priced rose 44% not annualized, but 44% in a 90-day period.

As of this week there were 24,241 single family homes and 6,221 condominium’s for sale. Why is this important? While real estate is a local market, more and more markets prices are coming under pressure. California the most real estate sensitive and expensive markets in the country, we have seen prices fall from the top of the market by 15% in some areas of the state.The average price of a single family home in California is $500,000 dollars. A 15% decline equates to a loss of market value of $75,000 and in some cases 100% of the equity a buyer put down to buy the property.

I was speaking with a client yesterday and she asked, “Why do you write so much about real estate?” For many American their home is their largest asset. Our homes unlike stocks or bonds are not for sale every day. If the value of our home declines, we get concerned about our future. Because the home is the largest investment, decline in the value of their home may have an impact on the quality of life in retirement for boomers.

The decline in the stock markets at the turn of the century saw many retirement accounts decline in value by 40% or more. While the Dow and the S&P 500 have set new highs, many millions of Americans have yet to get even, much less make a gain in their retirement accounts. Now add to that a decline in the value of their home and retirement may not look as good as it did just a few years ago.

The problem in real estate is not just the decline in the value of the home, it is that plus the impact on all the other related industries that go along with real estate. As I said in an earlier blog, I think we have not yet seen the bottom. In my hometown five new houses were built at the same time on the same street, all empty, one has been on the market for over a year and the other are getting long in the tooth. The market will hit bottom when all five are sold. Look at the new homes for sale in your neighbor hood and see how long it takes to sell. The one setting empty is counted in the 200,000 of unsold homes the big question is will we continue to see the number rise above 200,000? My guess we have a lot more to go.

Dan Perkins

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