Monday, January 28, 2008

A Tiny Glimmer in the New Home Sales Figures

The median price of new homes was down 10 percent in 2007. CPI grew by 4.1 percent, meaning that the real price of new homes declined by about 13.5 percent. This is remarkable adjustment speed for the new housing market. Moreover, with 5.5 percent mortgage rates, the median price of new houses ($215,000) is affordable to a substantial number of those in the market for new (as opposed to used) houses. Look at it this way--the after tax user cost of a median priced new house is now around $1276 per month (assume a 25 percent state and federal marginal tax rate, one percent property tax rate, two percent for depreciation and maintenance and NO nominal appreciation). I think that even in affordable markets, it would be difficult to rent a new house for $1276 per month.

I am not saying we have hit bottom yet, and some markets (Florida, the California Inland Empire) have some further price declines ahead, but I am just a little optimistic for the first time in awhile.

1 comment:

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