New Home Sales Rise 17.5% from December 2010

The government reported today that new home sales climbed 17.5% in December to the highest level in eight months! While good news to hear, are the results something to really get excited about?

New Home Sales Rise | Why the Excitement?

Obviously any improvements in new home construction is good news for the economy. Construction of new homes means more jobs for Americans. New home sales generally will sell at a higher amount, meaning an increase in median housing prices, which is good for the market.
According to Money.CNN.com, "Sales of newly built single-family homes rose to an annual rate of 329,000 units last month, from a revised 280,000 units the month before, the Commerce Department said. That was the highest level since April.

So this is promising news, but does it mean that we're out of the woods? No. Compared with 2009, sales are still down 7.6%, so we've got some work to do.
The excitement really comes from the fact that the monthly sales figure was considerably higher than the annual rate of 300,000 analysts surveyed by Briefing.com had expected. Any over achievement of the housing market right now is welcomed news.

New Home Sales Rise | What Does This Mean?

Well, it means we're out of the housing slump, right? Well, maybe not yet.
"Though it's better than expected, we're still not getting a serious rebound," said Doug Roberts, chief investment strategist for Channel Capital Research. "This is a U-shaped situation, where we can have monthly blips when it's positive, but we're going to be bouncing along the bottom for a while."
It is also hinted at in this article that some houses could've been discounted by homebuilders in order to clear out excess inventories.
http://money.cnn.com/2011/01/26/real_estate/new_home_sales/index.htm.

New Home Sales Rise | What is the Future?

Working with the banks to pick up distressed assets has become increasingly more difficult and less profitable. In many areas, banks are trying to unload their bank owned assets or pre-foreclosures at near market price, making flips unattractive. Therefore, investors with cash are finding it more profitable to build from scratch than to buy from banks, fix, and flip. This theory, if correct, would allow us to see a continuation of new home sales rising in coming months.

However, the caveat of all these types of real estate transactions lies in the banking lending policies. With bank financing being difficult for end buyers to obtain, more savvy real estate investors are turning to strategies that rely on conventional financing to those that rely on seller financing. Seller financing allows the investor who is selling the property to create their own terms, which is more profitable than relying on banks. Investors can close quicker and sell property to otherwise 'unloanable' buyers (buyers who don't have 750+ credit score, are self employed, or cannot walk on water) for a higher profit.

In summary, while the news of new home sales increasing is positive news, it may just be the results of homebuilders dumping their inventory at an end of the year discount. The real estate market probably will not get much better until the banks loosen their lending requirements. It does no good to offer a 4.5% mortgage if no one can qualify. Even though new home sales are rising, in order for real estate professionals, such as investors or Realtors, to survive in this industry, they will have to adapt their buying and selling strategies to include seller financing.

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