Perils of new home sales

It has been three to four years that the housing bubble burst. There have been ups and downs of the value of home builder stocks as well as new construction during this time period. Some of the ups are contributed to “abnormally warm and dry whether” as well as “end of the year building code changes” that jumped the number of permits to start new construction.

Even with good weather, historically low interest rates, and slow release of distressed properties by banks, new data from the Commerce Department shows new home sales dropped 7.32% in December, 2011 compared to the same period of the previous year. New home sales in 2011 dropped to an annual rate of 302,000, a new low since 1963.

Home prices are also continuing to drop further. Median price of a new home fell to $210,300 in December, 2011 from $215,700 of the previous month. Compare this to $241,200 of December, 2010. Expert say housing prices will remain weak due to less earning power of the consumer as well as debt load of individuals. Additionally, foreclosures are expected to rice within next few months. When financial institutions start to unload their inventory, prices could even drop further 10% to 15%.