Posts Tagged ‘new house price bubble’

Here they all go again: a new-house price bubble in the making

February 27, 2013

Politicians, builders, mortgage companies, realters, and impecunious would-be home-owners all love house price bubbles, at least until those bubbles burst. One would have thought that the post-2007 experience would have opened some eyes and closed some wallets. Apparently not, at least in the market for new houses.

:New home sales jumped 28.9% in January from a year earlier to the highest annual sales pace in four years, according to data released Tuesday by The Commerce Department. Sales of previously owned homes rose 9.1%. The disparate selling pace exists even though a typical new house cost 37% more than one already built, the widest price gap since the figures started being tracked in 1968, according to an analysis of home prices by Barclays Capital.” Robbie Whelan and Conor Dougherty, ‘Builders Fuel Home Sale Rise’, The Wall Street Journal, February 27, 2013

This disparity, both in price and in volume, is driven by all the actors in the U.S. housing market. Most especially, the nation’s home builders have re-mastered the art of selling that they deployed with disastrous consequences during the mid-2000′s. No cash? No problem! Bad credit? All the better! Under-water? Here’s a snorkel!

During the past two years, more home builders have offered to pay closing costs and to arrange home loans through in-house mortgage operations. They have drawn heavily on Obama-government-backed mortgage programs that enable buyers to purchase a home without any down-payment. In such circumstances, it has become much easier for a down-and-out would be home-owner to purchase a pricier new house than a less expensive existing house. Predictably, those buyers pour in, like moths to the flame, heedless of the tragedy of the late 2000′s and beyond.

“Two years ago, Lynda Riley and her husband started combing listings of existing homes in Stafford, Va. about forty miles from Washington. With past credit problems, including a 2008 bankruptcy filing, they figured they would spend $200,000 to $250,000 for a townhouse or a three bedroom. After seeing more than 10 pre-owned homes, Ms Riley and her husband spent far more than their budget, paying $426,000 for a new, four-bedroom house with a two-car garage and shiny kitchen appliances. Their builder, Drees Homes of Fort Mitchell, Ky., helped with $5,000 in closing-cost assistance, and they received a gift of $12,000 from a family member to help cover a down payment. ‘It’s much easier to buy a new home thsn an old one,’ said Ms Riley…’The builder’s whole attitude was, ‘No worries.’ They help you and they trust you. They really, really want you to get approved.’” ibid.

‘Do come in my parlor’, said the spider to the fly.


Follow

Get every new post delivered to your Inbox.

Join 76 other followers