bostonbubble.com

[unlawflcombatnt]

Median new home prices declined for the 3rd straight month in July. Since April of 2005, median new home prices have declined 14%. Prices have declined 10.6% over the last 2 months alone. The decline over the last 2 months is at a 63% annual rate. At the current rate, new home prices will be less than 1/2 of their current level by July of 2006!

July's median new home price declined to $203,800 from June's 219,500. This was a 7.2% 1-month decline. This follows a 3.4% decline in June from May's $227,000. This follows May's 2.2% decline from $232,000 in April. The year-over-year change in new home prices is -4.0% from last July's $212,400. Adjusting for an annual inflation rate of 3%, this month's new home price would be $197,686 in 2004 dollars. This marks a -7.4% yearly decline in inflation-adjusted new home prices.

New home sales did increase for the month of July, though price reductions were largely responsible for this. However, existing home sales declined for July, bringing the annual existing home sales rate down by 2.6%. In addition, there has been a 15% increase in inventory of homes since March alone. July's increase in supply of homes marked the 4th straight month of increases in home inventories. This would be expected to sustain a continued decline in home prices.

Combining the price and sales declines with 4 straight months of home construction decline, evidence is mounting that the housing bubble is deflating. And the deflation appears to be picking up speed.

The link to the article about today's new home price declines is at:
http://biz.yahoo.com/ap/050824/economy.html?.v=15



unlawflcombatnt
EconomicPopulistCommentary
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The economy needs balance between the "means of production" & "means of consumption."

[admin]

Thanks for the cogent analysis. At first glance when I saw this news earlier today I thought it was positive news for real estate markets since the focus was on the increased volume and the price declines were not emphasized.

I was expecting the bubble to burst by seeing the volume of sales slowly dry up until very few will be buying which will then force those who really need to sell to lower prices and then things would snowball from there. I know others were expecting that too. Could this have already happened without the drop in volume? If the majority of sellers were under strong pressure to sell, that would explain the price declines and the price declines would help explain the increase in volume.

Alternatively (and probably more likely) is that the numbers from the article combine two different Americas at different phases of their real estate booms and possible busts. Perhaps the median price declined so much because the sales are shifting from cities, where property is generally higher priced to begin with, to rural areas with lower prices. The national median price could therefore fall in this manner without any change in median prices in individual areas. In other words, maybe people are buying a lot fewer $1M homes around Boston and a lot more $200K homes in rural areas. That hypothesis would actually fit with the Globe article today which reported that the volume of sales for homes in Massachusetts has declined 3 out of the last 4 months, including July.

- admin

[Guest]

It's almost July now, and prices aren't 1/2 of where they were last June. They're higher.

[admin]