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US Builders Concerned Over Impact of Weak Home Sales in October

By Allison Halliday | December 4, 2013

A recent survey of builders carried out by John Burns Real Estate Consulting has revealed that sales of new homes in October fell by 8% compared to September, and by 6% compared to a year earlier. This is the second consecutive month in which this survey has shown year on year decline in sales, and it could mean that home builders will be worrying as to how the property market will perform in spring.

The article in the Wall Street Journal points out that fewer builders were raising prices, as just 28% said they had done so in October compared to 32% during the previous month, and 64% in July. In fact 12% had dropped their prices in October, the same percentage as the previous month, but in July no one had needed to cut prices. It's likely these figures were affected by the government shutdown, dampening hopes of any seasonal sales increases.

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The Burns survey covers 273 markets in the US and it received 248 responses. It's useful as it provides an early peek at the monthly sales of new homes before the US Census Bureau releases its data. It shows how the new homes market has slowed after seeing a rapid increase in prices earlier on in the year. Between May and September there was a one percentage point increase in interest rates, but even though rates have declined slightly since September, buyers are still reluctant to commit to purchasing.

The number of contracts signed to purchase new property typically declines during the fourth quarter as buyers tend to be distracted over plans for the holidays. The concern this time is that the economic recovery is still relatively fragile, and that it could hold back the spring selling season next year, but affordability of property seems to be key. Some builders are shifting their attention towards constructing more affordable homes such as town homes, as they realize property price increases have outpaced salary increases and job growth. Not all builders are pessimistic about the prospects for next spring. This is due to the fact that interest rates are still low and supplies of new homes are still constricted.

According to the Burns survey, sales volumes did increase in certain areas including the Southeast where they were up by 13%, Northern California where sales volumes increased by 11% and the North-western US where sales volumes were up by 31% in October compared to the previous month. However sales declined in Southern California by 8%, by 12% in the Northeast, by 15% in Florida, by 16% in the Southwest, and by 21% in Texas.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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