Although painful for homeowners and the economy as a whole, the pullback in home building and the dramatic drop in real estate prices are helping to bring the housing market back into balance. That’s a key take-away from the Commerce Department’s new-home sales report for August, which was released Friday. Although new-home sales increased by a weaker-than-expected 1 percent from the previous month, the report showed that the backlog of unsold new homes has fallen dramatically.
Here are five things you need to know about the report:
1. Inventory Drop: The Commerce Department reported that the new-home market has a 7.3-month supply of unsold homes at the current sales rate. That’s down from 7.5 months in July and 10.9 months a year earlier. With just over 7 months of supply, the inventory is "almost at the point where prices can be expected to be broadly stable," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report. Mike Larson of Weiss Research noted that the country now has the fewest new homes on the market since the fall of 1992. "That month was a tie, by the way," Larson said in a report. "We haven’t seen a lower reading since Ronald Reagan’s first term as president."
2. Price reduction: What’s behind the dwindling inventory? Falling prices have played a key role. While awful for homeowners, cheaper prices work to draw more buyers into the market, helping to absorb the overhang of unsold homes that puts downward pressure on real estate values. Median new-home prices dropped by nearly 12 percent, to $195,200, in August from a year earlier. "That leaves new homes at the cheapest level in almost six years," Larson said.
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