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Signs of Recovery in New-Home Sales

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By Margaret Kelly

new_home_sale_keys(1)As families try to get their moves completed before the coming school year, some of them will choose the benefits of buying a new home. That’s good news because it underscores the slow but steady gains being made in this crucial part of our industry.

From the dramatic lows of 2010 and 2011, when builders struggled to stay afloat and new-home sales dipped to just over 300,000 annually—a low, by a wide margin, not seen in 50 years—new construction has battled back at a deliberate but constant pace. Despite a slow start to 2014, the pace of new-home sales is close enough to last year’s hopeful total (429,000) to suggest we’ve put the historic lows behind us.

Here’s an interesting perspective on where things stand. A report released by Hanley Wood in May compared Q1 new-home sales and REO sales in 20 major cities. Cumulatively, closings on bank-owned properties were double the total of new-home sales. That 2-to-1 ratio might seem alarming at first, but it’s actually a big step in the right direction.

Since 2008, when distressed properties overwhelmed the system and REO sales first surpassed new-home transactions, the ratio has stayed closer to 3-to-1 or even 4-to-1 nationally. Within that context, 2-to-1 is encouraging, especially with the overall average weighed down by a handful of cities where REOs still reign—most notably Detroit. The fact is, more than half of the 20 markets were closer to 1-to-1 than 2-to-1.

Better yet, in four markets—Dallas, Houston, Denver and Washington, D.C.—the new-home sales topped REO sales. This is huge, given the conditions of the past six years.

In its coverage of the study, The New York Times put it like this: “One way to tell the housing market is beginning to show signs of health would be that builders of new homes are selling more houses than banks do. We’re not there yet, but the gap is narrowing.”

Yes it is. And it’s making a difference. Increased construction means greater inventory, which is welcome news in virtually every part of the country. Low inventory has been a major headwind, and the infusion of new homes has helped prices rise about 10.5 percent above last year.

New homes also give agents a great option to offer their buyers. In NAR’s 2014 Home Buyer and Seller Generational Trends study, two generations—the boomers and the millennials—indicated high interest in considering new homes.

These massive groups (totaling about 160 million U.S. residents) view modern floor plans, new appliances and low maintenance as highly appealing. Smart agents are recognizing this and researching the availability of new homes in their communities.

They’re also building or strengthening relationships with local builders and sharpening their skills in the new-homes niche. One very credible resource is the Certified New Home Specialist/Residential Construction Certified course, a worthy investment of time for any agent.

Recovery takes time and usually includes its share of stalls and setbacks. The rebound isn’t happening overnight, but it’s definitely happening. And factors such as more new-home sales, pent-up demand, improvements in the economy and shifting demographics might even quicken the pace moving forward.

Margaret Kelly (CRB) is chief executive officer of RE/MAX, LLC. For more information, visit www.remax.com.

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