November New Home Sales Down 11.3% From October

November new home sales are down and I’m surprised at the surprise expressed in the media. I would have bet a dollar to a donut that sales would be down. Sales in the south were down more than 20% and that makes sense. An article at money.cnn.com starts out with:

“New home sales unexpectedly plunged in November, according to a dismal government report.”

Foreclosures and Short Sales Are Driving the Market

Unexpectedly plunged? Unless an area has a shortage of homes available for sale, foreclosures and short sales are driving market prices and new homes just cannot compare in bang for the buck. I don’t know how a developer could make money building new Daytona Beach homes. No prudent builder would build a home on speculation without a contract from a buyer. Only custom homes are being built in the area and very few of those.

Inventory in general, but more importantly inventory of distressed properties, needs to decline significantly before new home sales will rise in the south and southwest. These were the areas driving new home sales before the bubble burst. So if these areas are not building, the national numbers will be down.

I’m not a economist. I tend to look at things as simply as I can. I just can’t see new home sales rising until the last of the foreclosures and short sales work through the market. That won’t happen until after 2011 when the last wave of foreclosures occur.

Maybe I’m wrong, but why would people pay significantly more when magnificent homes are available at significantly lower prices. Time will tell, but I think the economists who are surprised this month are going to continue being surprised unless they take a different view of foreclosures and their affect on the market.