Surprise home sales increase, savvy buyers happy

Surprise home sales increase, savvy buyers happy

The month of February has provided two surprises in the American Real Estate business. First it was the rate of new homes, both sales and construction of new homes rose. Then it was the turn of existing homes that also increase in the rate of sales. All of this in the worst depression since the Second World War. The market forces behind these surprises run deep and are very complicated. However one thing is true, savvy buyers that waited for their chance, were careful with their spending and had the good sense to save are walking with silly grins on their faces. This article will seek to go a deeper into the headlines and provide some kind of explanation to these “surprises”

Capitalist societies are very interesting. They are complicated. They are run by a delicate balance of power sharing, where real and imagined forces mold and are molded by thousands of factors and details. A good example is the Stock Market, a virtual market where basically anything can be bought and sold. You can buy futures on the price of steel in 5 years time, selling those futures a day later for a fortune after a war is declared.

That isn’t the interesting part, the interesting part is that capitalist societies are also very simple. They can be explained to a certain degree (a pretty good degree) with simple factors like fear and greed, offer and demand.

It is useful to see how these relatively simple concepts can help us understand the recent increase in sale of new homes and existing homes.

In October new homes sales raised from 454,000 to 464,000. Why? We are in the middle of a depression. Aren’t buyers supposed to be scared. The market simply reacted to very aggressive price cutting from constructors of new homes which were reacting to the price slashing caused by foreclosures. However the sales continued to drop after October and rose again in February. At the time our mortgage rates are extremely low and prices continue to drop encouraging buyers to buy the bargain of their life at low interest.

What was a further surprise was the rise in existing homes by 5.1% from January, the reason? As one publisher said explained quite clearly, 750,000 dollar houses are now selling for 250,000 dollars. That is why the home sales are rising. That added to record low mortgage rates and banks that don’t seem scared to lend as their loans are insured by the government.

It is difficult if not impossible to know how things will pan out in the next months not to mention years. But these signals can be seen as  a sign that market forces and trends are realigning the market to its current “real” state. As the credit crisis continues, home prices are dropping to reflect the fall in demand and ability to pay. This may automatically balance the prices of homes without destroying the Real Estate market. In the meantime those that outstretched their income are suffering while those that saved wisely are reaping the benefits.