New Home Sales Improving

There is more proof that the housing market is showing that its worst days may be over.

According to the Census Bureau, the number of new homes sold in June leapt by 11 percent from May new home sales. It stands as the biggest one-month jump in 8 years.

A “new home sale” is when a home in any stage of construction, not yet started, under construction, or already completed — goes under contract, with a builder. It’s the opposite of an “existing home sale”.

In addition to surging sales, the monthly supply of new homes fell to its lowest level in 11 years.

Because home values are based on the relative supply and demand for a particular home in a particular area, anytime that demand for homes grows faster than supply, we would expect prices to rise, which is exactly what we’ve been seeing.

The combination of low interest rates, seller-paid incentives and a first-time home buyer tax credit is bringing buyers into the market faster than new supply can come online, which is one reason why home prices have stopped falling in many parts of the country.

It’s also why home buyers may find it tougher to get a good deal in real estate later this year and into 2010. If demand continues to stay high and supplies fall further, sellers should regain the upper hand in contract negotiations.

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