USA TODAY US Edition
-New home sales hit record low,
Home builders provide jobs
WASHINGTON — A new home, the dream of many would-be buyers, makes less and less financial sense in many places. A wave of foreclosures has driven down the cost of previously occupied homes and made them even more of a comparative bargain. By contrast, new homes have become more expensive.
The median price of a new home in the United States is now 30% higher than that of a home being resold, more than twice the gap during a healthy housing market.
Such a disparity can be a drag on the economy. New homes represent a small fraction of sales, but they cause economic ripples, bringing business to construction and other industries. Sluggish sales of new homes deprive the economy of strength.
“A lot of people are saying, ‘If I can get a great deal on a home already on the market, why go through the headaches of getting a new home?’ ” says Mark Vitner, a senior economist at Wells Fargo. “There’s a relatively small group of people who have the credit, have the down payment and are secure in their jobs that can go out and buy new.”
The gap is widening because prices of previously occupied homes are falling fast, pulled down by waves of foreclosures and short sales. A short sale oc- curs when a lender lets a homeowner sell for less than is owed on the mortgage. New homes aren’t directly affected by such sales.
Sales of new homes have plummeted over the past year to the lowest level since records began being kept in1963. February’s sales fell almost 17% last month to a seasonally adjusted annual rate of 250,000 homes, the Commerce Department said Wednesday. It’s the third monthly decline in a row and far below the 700,000-a-year pace that economists view as healthy.
Diminished sales have driven the median price of a new home down to about $202,000, the lowest since 2003.
By contrast, sales of previously occupied homes have fallen almost 3% in the past year. Prices have dropped more than 5%. In February, the median price for a resale was $156,100, according to the National Association of Realtors.
Home prices and sales still vary sharply among metro areas. Cities with more foreclosures tend to have more resale homes that have languished on the market and are bargainpriced. That makes new homes in those areas comparatively expensive.
In Atlanta, for instance, where foreclosures accounted for one in every 23 homes sold last year, the median price of a previously occupied single-family home was $109,900, about 12% lower than a year ago, according to the Georgia data firm SmartNumbers.
The median price of a new home was more than twice that.
“That’s as much of a difference as we’ve ever seen,” said Steve Palm, president of SmartNumbers. “New homes can’t compete, and that means jobs.”
An average of three jobs and $90,000 in taxes are created for each home built, according to the National Association of Home Builders.
In some areas, older homes were more expensive before the housing market bust. That was especially true in urban neighborhoods with little or no room left to build on. But now, buyers get their pick even in some of the trendiest places.
That’s what Robert Rost is finding in central Phoenix. Rost doesn’t want to commute far to his job. He’s been looking for a home for about five months but can’t find new properties in the neighborhoods where he wants to live.
“I don’t want to commute 45 minutes to an hour a day one way,” the 38-year-old computer engineer says.
Home builders have taken notice. Residential construction has all but come to a halt. Builders broke ground last month on the fewest homes in nearly two years. And building permits, a gauge of future construction, sank to their lowest in more than 50 years.
Many builders are waiting for sales of new homes to pick up and for the glut of foreclosures and other distressed properties to be reduced.
But with 3 million foreclosures forecast this year nationwide, a turnaround isn’t expected for at least three years.
Don Eyler, who has owned E and R Construction in Terre Haute, Ind., for three decades, blames the banks. He says people are still interested in having a custom-built home but can’t finance the purchase. Tighter credit has made it harder to get larger loans.
Eyler typically built eight homes a year before the housing boom and bust. Now, he’s averaging just about five. And he’s making less profit on each.
Fewer new homes built means fewer jobs added to an economy struggling with 8.9% unemployment. About 2.2 million overall construction jobs have disappeared since the housing crisis. That’s nearly a third of the people the industry employed in January 2007.
Home builders cut nearly 1.3 million jobs in that time, or 39% of total payrolls.
There’s also the psychological factor. In good times, most homes rise in value. But new homes historically have risen faster — by an additional 1.5% a year, according to Realtors and Census data.
When homes appreciate in value, people feel they have more money. So they spend more.
“When you have more net worth, especially in your home, you feel richer,” says Chris Christopher Jr., senior principal economist at IHS Global Insight.