Sales of the Existing and Pre-Construction Homes

The sales of the existing and pre-construction homes have seen a noticeable jump in January 2014, mainly thanks to the increased number of cash buyers and the abundance of the rock-bottomed foreclosure and short-sale deals. the Share of combined foreclosure and short sales has hit the highest level in the past 12 months, according to National
Associations of Realtors (NAR).  This trend continues all through 2011 to present with fist time and vacation home buyers entering the market in a pattern that by 2015 some markets like Miami were experiencing a shortage of inventory already.

What all this means to you and where the general economy heading all needs a closer look at all factors that should come together in order to help out the construction industry. The bad news for re-igniting of the new home construction in early 2010’s and 2011 was the increased demand for distressed properties as they are competing with the new homes and hence the construction industry.  The 9% unemployment and tight credit, on the other hand, have  had a negative effect also by reducing the pool of potential buyers and lowering the demands for new homes.  Most economists believe that the start of the new home constructions in recent years has been instrumental in lowering the unemployment rate to below 6%.

Now, where is the good news in all this? It simply relies on the news of the increase in the sale of the existing homes, which are mainly bank-owned or short sales.  The fact is that the sooner the foreclosed homes are picked up from the market the sooner the demand for construction of new homes will start.  At this time, new homes can not compete with lower priced REOs and short sales.  In most communities, the prices of the existing homes are a fraction of what a new home will cost and as log as this persists start of the new home construction will not make any economical sense. The fusion of cash by many REITs and foreign buyers to the stressed property market has also triggered the increased competition in grabbing these properties and eventually resulted in a hike in the sales of the existing inventory by 5.3% compared to the year before.

Another indication of a stable market is the number of the months that will take to sell the entire inventory in any given market.  According to Lawrence Yun, the chief economist in NAR, the number of the months to sell current inventory in June 2015 was in pace to 5 months from 5.1 months in the prior month. As general to carry a 7 months inventory is a sign of a stable market, which makes the current 5 months rate as a positive indication of a stabilizing market and for that, this is also a good news.  

The recent recession along with the increase in the cost of borrowing and unemployment are the break pads slowing down the housing industries. The same industry that triggered the recession will eventually become The Savior and although 2015 is forecasted to be a positive year but we believe it will be a constructive year laying down the foundation for a much better years for the construction industry in 2016 and continue to get even better in coming years ONLY IF we could the limit the number of the foreclosure homes.