Why are New Home Sales Down?

Real estate agent showing interior of house to senior couple

Recent reports from the Census Bureau have revealed that new home sales in March 2014 were down 14.5 percent compared with February.  Since learning of this, the real estate industry has been trying to justify this lag.

According to the National Association of Home Builders (NAHB), this could be due to tight credit conditions which prevent many first time home buyers and younger families from purchasing their own homes.

Economist David Crowe has supported this and explained that “Overly stringent underwriting standards for mortgages have had a detrimental effect on modest-priced markets and have hit first-time home buyers particularly hard”.

However, lots of evidence shows that lending standards today are much more relaxed and that credit scores required for typical home loans today are much lower.

Meanwhile, some people in the homebuilding community attribute the sales lag of new homes to the terrible winter that hit various states.

Realtytrac has explained that bad home sales during the first quarter of 2014 have little to do with credit and with bad weather. It was simply that there are many wrong products in the market now that are not priced accordingly.

“The median sales price of new houses sold in March 2014 was $290,000; the average sales price was $334,200,” according to the Census Bureau.

Meanwhile, existing homes had a median sale price of $198,500 in March, says NAR, making them vastly more affordable than new properties.

More people are leaning towards purchasing existing properties because they are cheaper and this affects sales rates for new home.

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