Thursday, October 18, 2012

New Home Sales Surge: Is The Mania Back?

As part of the real estate mania series this week first looking at existing home flippers, then the apartment market, we now turn our attention to the new home sales arena.

The following chart shows housing starts for the month of September putting it in context going back to 1968. You can see that starts are still below the trough levels of past real estate recessions when the population was far lower. The dotted line shows the still record high unemployment. Unfortunately, even with today's government sponsored loans you need a job to purchase a new home.


However, turning on the news you would think that home starts are back at 2006 levels with all the excitement. There is cause for some excitement as the trend line has turned up significantly. Annual home starts rose to 872,000 - a 15% rise. New construction on apartments was up 25.1% and single family homes rose 11%. This is up 45% from a year earlier (off of the absolutely depressed levels seen in the bigger picture graph above).

While builder confidence has surged exponentially higher in recent months, actually hiring of residential building employees has remained stagnant (red line in graph below). I find this interesting as the builders are telling us they are believers with their confidence numbers yet have not proven it with new employees. Perhaps there is a surge coming. We will see.


It is worth noting that in order to obtain a FHA loan it requires 2 years from the point someone filed Chapter 7 bankruptcy and 3 years for a foreclosure or a short sale. This means that someone who stopped paying and then walked away from their home during the early stages of the home price declines can now step right back up and get a new loan courtesy of the FHA (paid for by the other responsible tax payers of course - the FHA is a government loan program). This new loan ready supply of buyers, who normally would need to wait much longer to purchase, is significantly helping the new home market.

Just think, if an American closes on a new home they might be able to live in it for close to two years without making a payment (about how long it takes many banks to foreclose on homeowners as they push back the shadow inventory). After those two year have finished the government may now have a program allowing FHA loans after any amount of time someone has come out of foreclosure. Someone could hypothetically live for free, forever.

All in the process of helping their country and putting other people to work through the purchase and building of a home. Home of the brave and the land of the government sponsored free monthly living payments.

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