New Home Sales Drop

New home monthly sales dropped to their lowest level since September of 2001 according to Greg Paquin of the Gregory Report who makes a career of keeping track of new home sales data for builders. The month of November is historically a slower sales month but according to Greg, the 368 new home sales in November were the lowest for any November since 1997. So what’s up with that?

Cancellations accounted for the slower closing rate. More people would be able to buy if they could only sell their home first. They can’t, because of the price that they and their agent place on the home that they need to sell. Any home will sell in any market if priced correctly but unrealistic expectations of sellers, who would be new home buyers, has resulted in a 40 percent cancellation ratio.

Builders are not in a panic but I predict some serious price adjustments or concessions, especially in Lincoln, Elk Grove, Natomas and West Sac where the average price of a new home is $523,000. I also expect to see a much slower pace for new construction during 2006 and maybe 2007. The Capital Region will still be a good area for new home builders but their profit margins will be less than the previous four years.

Enjoy your weekend. Vicki and I will be preparing for the arrival of seven family members for the holidays.