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New Home Sales Show Positive Signs

The future of Myspace and other business news have been mostly foreboding, but there has been some good news on the horizon.  New home sales in September of 2010 rose by a significant margin, which was even more impressive when compared to the same time last year when sales had dropped from the previous month. There have been government incentives and other programs which have come and gone, and yet it seems as though the new home market is on the slow path to recovery. In many states the construction industry has been almost at a standstill for multiple years, with new starts having dropped severely and remodels not picking up enough to make up the slack. And the real estate industry has also suffered along with performance car insurance companies and everyone else, losing what used to be easy sales to pad their earnings.

Even as late as the mid part of the decade in some states, builders could develop a subdivision at certain price points and sell every last lot before homes were even built. Realtors who worked out of models made their living focusing on these sales. Many trades completely relied upon builders to keep them busy. As a result, when new home starts plummeted, many companies went under and a lot of other ones were forced to radically adjust the way they did things in order to survive.

Economic Significance of Home Sales

New home sales are strong economic indicator used widely to assess the condition of local and national economies. As a nation we use nationwide figures on monthly starts as a leading economic indicator. It is obvious why this is the case. Generally speaking, when times are good, people have more money to buy houses, and when they are not so good newly built homes either don't sell or never even get finished because builders run out of money to finance them due to slowness all around in their businesses.

When these figures are released each month, they always seem to have an effect on consumption. When people see that new home sales are up, they tend to open up their wallets more to spend money on things. Likewise when the housing market struggles over the course of a month, people tend to see it as a sign of trouble and hesitate to spend.

Limits of Housing Statistics

There are some limits to these figures on new home sales that we hear each month from the United States Census Bureau. For one thing, the numbers do not include new home starts on property that was already owned by the purchaser, and it does not include homes that are not built for immediate sale [1]. There are some other limitations to these statistics as well. However, it is clear from many years worth of historical data that new home sales are a strong indicator of the way the economy is doing in general. These indicators might not be as specific as some others, but what they provide is a general representation of the state of things in the country.

When people check out the leading economic indicators, they are usually not doing it to find out how they are doing, because as consumers in the market we already know how we are positioned. What these indicators do is provide us with ways to try to detect patterns and make predictions going forward. In other words, choosing whether or not to make a large cash investment that would cut into your savings might be impacted by something like this not because of your own concerns about your current ability to pay, but rather about what new home sales say about what might be ahead.

[1] http://en.wikipedia.org/wiki/New_Home_Sales Retrieved 2010-10-30.

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