Why new home sales rally while existing home sales lag behind
Sales are picking up for both new and existing homes, but there is an anomaly: New homes, which are more expensive, are moving faster than less-expensive existing homes.
Two selling situations in Utah illustrate what is happening across the nation.
Real estate expert and agent Gaynell Instefjord has had a few buyers lined up to purchase an existing home as a short sale in West Jordan, Utah — but the process for buyers is difficult and takes months.
Meanwhile, Philip Mosher, director of sales and marketing at Hamlet Homes, is happy to talk about how the developer at the new Kenmure Place homes in Millcreek has sold six homes out of the 20 available. "That's a home a week," he says. "We are happy about it."
Recent national statistics show the trend.
First, new home sales: The U.S. Census Bureau and the U.S. Department of Housing and Urban Development report that the sales of new single-family houses in January were 28.9 percent higher than they were a year ago.
Existing home sales are also up: The National Association of Realtors reported that existing home sales in January (including single-family homes, townhomes, condominiums and co-ops) were 9.1 percent higher than a year ago and 10.2 percent higher in February compared to last year.
Part of the reason existing home sales are trailing new home sales is inventory — the amount of homes for sale. The number of homes available affects prices. And as Instefjord illustrates, prices and inventory are intertwined with the results of the housing downturn a few years ago.
In January, the supply of existing homes on the market hit a seven-year low, according to the National Association of Realtors. In February, the number of homes on the market went up a little, but it was still down 19.2 percent compared to the same time last year, Haver Analytics says.
The Re/Max National Housing Report had slightly more negative news. It averaged data from 52 different metro areas to show that in those areas, February saw a 2.7 percent reduction in the number of homes listed for sale. "A month-to-month loss of inventory has now occurred for 14 straight months," the report says. The number of homes was 29.1 percent lower than the same time last year, according to Re/Max's report.
"The preowned prices are not going up at the rate you would expect them to go up with the narrow amount of inventory that we have," says Instefjord, an associate broker at Coldwell Banker Residential Brokerage in Sandy.
Usually scarcity meets a demand that drives prices up. But there are strange things going on in the existing home world. Instefjord puts much of the blame on short sales.
Short sales are where a home owner owes more on a home than the home is worth. They can sell the house, but won't make enough to pay off the bank loan. They are short the difference.
If a bank wants to, they can agree to accept whatever the owner can get for a home. But banks are naturally reluctant to take the loss and are slow to make up their minds about approving short sales.
Instefjord has a client who wants to sell a home as a short sale. The bank approved the sale in December, but unfortunately the buyer failed. Another buyer made an identical offer in January and near the end of March the bank has still not approved the sale.
"The ability to move short sales through the system — to get them … to 'sold' is very difficult," she says.
Instefjord says she recently looked at 144 homes that were similar to a particular home for sale. Of those 144 homes, 74 were already under contract and 70 were still active for sale.
The problem with pricing is that among all those homes were 33 short sales — and of those short sales only six were under contract. This means that 27 of the 70 actively for sale were short sales.
And since short sales sell for less but can take months to get approved, they drag the prices down even in a tight market.
So non-short sales are trying to push the price up, and builders are pushing their prices up because there is demand on available properties.
Making it easier
Clark Ivory, owner of Ivory Homes in Utah, says new homebuilders are working hard to make sales. "We try to make it easier to buy a home," he says.
Homebuilders typically pay closing costs, for example.
They also make it easier to get loans by offering credit repair programs.
"We're taking a client who has a reasonable credit score and helping them get an excellent credit score so they can buy a home," Ivory says. "Whereas in yesteryear, in the hottest market, those with really difficult credit were still able to buy a home. And they could even do it with less money down … those free and easy loan programs are not available today."
People are buying more expensive homes, he says, but those homes are also more energy-efficient.
And having a tight inventory with existing homes — even with lower prices — drives people to purchase easier-to-get new homes.
Mosher at Hamlet Homes says he sees a change in lending, though.
"Lenders are starting to feel more comfortable," Mosher says.
"But short sales are like a noose around the (existing home) market's neck, and keep pulling it back downward," Instefjord says. "When they close, if they close, they are going to close 10 to 15 percent below market value. That is a new-sold comparable that we have to use in determining the appraised value of the next home. It's a big cycle that we are stuck in and we are still not OK with short sales. We still have a huge amount of short sales in our area, and it is not a lot different anywhere else."