Yesterday, I wrote about how existing home sales rose in February. Today, the real estate trend news is all about how new home sales fell in February. This is an interesting dynamic. Why do existing home sales rise while new home sales fall?
I have a theory.
New homes are often sold by a builder these days. This means that there is a certain price point that builders want to hit. And, since the builders own the home, it is possible to sit on it for a little bit longer. It decreases the availability of liquid assets, but if the builder has managed things properly, it won't be as big a deal.
Existing homes, on the other hand, belong to people who might be more motivated to sell. This means they are more willing to negotiate, especially if foreclosure is on the horizon. This means that you can get lower prices (this is often true in many a real estate market anyway) on existing homes. And with banks wary of lending money right now, the lower price may mean that you qualify for mortgage financing. You may not qualify for a higher-priced new home.
Interesting theory, however most of the builders actually borrowed money to build, so to reduce the debt, they will want to sell as quickly as possible.
Posted by: tehnyit | March 27, 2008 6:14 AM | Permalink to Comment