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New home sales reportedly spiked in October. Huh?
Builder stocks spiked right after the Census Bureau release Wednesday morning, and we are sure that many believe we are in a strong housing market again because of the headlines. On Fox Business, I explained what is actually going on. We discussed:
- The data quirk behind the simultaneous release of plunging September sales followed by a return to a more normal trend in October
- 444,000 sales being just more than half of normal new home sales
- The missing entry-level buyer
- My anticipation for low homeownership due to the tremendous disincentives to lend to the credit-challenged borrower
As a kid, I remember the Apollo lunar module losing all communication for about one hour as it orbited around the back of the moon. We all held our breath for that hour, waiting to hear that all was okay.*
That is what happens with the housing market each winter. Sales slow during the holiday season and don’t pick back up until the sun shines. That sun shines brightest first in Arizona and Florida, which is where we will be turning our attention in January as the first indicator of 2014’s housing market.
The Cool Fall
Home builders have been gobbling up sites in A and B markets in Southern California for the last 18 months, driving land prices back up above mid-2000s peak levels. Higher land prices are impacting profits and making deals tougher to pencil. What's a builder to do?
Consider low land-cost D and F locations.
While everyone has heard the real estate adage location, location, location, the truth of the matter is that the real indicators of potential new home project success are location, timing, and price. If you have all three - a good location, good timing, and the right price - you will hit a home run every time. Even if you have just two out of the three, chances are you will still do well.