Sales of existing homes nationwide saw a record drop, according to data released this week, while new-home sales actually rebounded, a disconnect local analysts attributed to builders selling off stock and preparing for an ongoing downturn in the housing market.
“The general belief is that builders are lowering prices a lot to move these homes,” said Deborah Ford, finance professor at the University of Baltimore. “They?ve got to. They?re sitting on hundreds of thousands of units. Sellers [of existing homes] are not willing to take that kind of cut.”
By slashing prices on unoccupied units, throwing in free rooms and offering big upgrade packages, homebuilders have a lot more flexibility to move their stock than the average homeowner ? but also have much more of it to move.
“Those homes are sitting there built,” said Bill Parisi, president of 1st Preference Mortgage Corp. “A lot of them are throwing in a $35,000 furnishing package. The builders are … doing more of a giveaway.”
Parisi added that builders may also face pressure from other sectors, which face secondary effects of their new homes standing unoccupied.
“It affects everyone,” he said. “When new homes were down last month, the cable people were out of work. It really is a wide-hit area.”
The sell-off may make the numbers look good, but University of Maryland finance professor Pete Kyle said those numbers may indicate builders battening down the hatches, not a true rebound in the market.
“Builders are making aggressive moves to move their stock, anticipating that the home price plunge might be around. I don?t think the new homes are recovering,” Kyle said. “I think that what happens is home construction will go down really far, it will end up looking like the early 1990s. I think that?s pretty clear that?s what will happen.”
Ford also expected a big drop in new construction but said it might recover quickly once the housing market in general turns around.
“When they get rid of some of this inventory, when [stock] gets low enough, they?ll start building up again,” she said. “Eventually, in the next few years, people have to live someplace, and the bottom will have been reached, and it?ll come back up.”
