Home sales down big time in July, are we due for a correction?

[Yippeekayay]

Originally Posted by Zippyman

The median income won't support the median home price - if you're making $50k a purchase of even $150k is a stretch in the real world. $300k is basically financial suicide. That median home price has been affected greatly by people with much higher incomes & equity buying really expensive homes.

Exactly my point. Though I would argue that $200K is realistic for $50K. After tax, insurance and some 401K, you take home $35K , live on $20K for the year and pay $15K on the house for 15 years.

[sholomar]

Well within the moving average. With nonfarm payrolls still strong, nothing to see here. As for what other people want to pay for houses, that's between them and the bank. I'm doing fine.

[CGab]

We live in NW Indiana where a lot of new construction is happening. In my subdivision they just opened 3 new lots for sale and half have already been sold in 2 months! There is a complete lack of inventory on existing homes here and new construction is booming!

[1insider]

Originally Posted by Giesela

I wish people would put there area. This is almost meaningless

The thread title doesn't specify an area so the entire thread is meaningless as applies to specific markets.

[Zippyman]

Originally Posted by BoBromhal

so you think Builders HAVE TO get 35+% higher than existing, or they'll go out of business.

I think the analogy is not unlike the car business - for whatever reason, the car industry has decided that they "can't" turn a profit on small/inexpensive cars (they've been claiming that for decades) , so they naturally try to shift their business to higher-margin trucks and suv's.

Which usually works out great until gas prices spike, then they rush to knock together a "cheap" car plant (or more likely now, an electric/hybrid car plant), which usually gets completed & ready to spit out inexpensive (or highly efficient) cars just when gas prices moderate. Then it gets quietly shuttered or converted to spit out high-margin trucks. Toyota completed a new Prius plant in Texas just as the economy tanked & gas prices went down, then they converted that plant to make trucks.. GM has a plant in Lansing ready to make electrics & it's laying employees off right now.

The difference is, builders haven't even tried to build "median" new homes since the last crash.. They're so risk-averse now that they'd rather build nothing than build something that isn't going to be pretty much guaranteed profit.

Builders don't have plants & legions of employees with high fixed costs & it really isn't their problem or their concern if a "median" buyer can't afford the product. They would much rather build five profitable homes than fifty "affordable" homes that may or may not be profitable. Cheap financing is supposed to incentivize risk-taking in a pure economy, but our economy isn't pure by a long shot. The areas where we need "affordable" housing the most - lack cheap labor & cheap land & cheap regulation. My area (Phoenix) is renowned for cheap labor & "cheap" land, but even here just the development fees & permits to start building on land you already own are $20-$30k. (I'm talking about wastewater/water capacity fees, etc ). The fees are the same if the house you're building is $149k or $549k.. If I had buyers in both pools available, I'd build for the big fish & let the little ones fend for themselves too.

That said, since all their labor is subcontractors & they've structured their land purchases the way they have, if the buyers dry up, they keep their bank accounts & just stop participating until buyers come back into their pool. No one goes out of business.. They just take a vacay..

[tolovefromANFIELD]

Originally Posted by BoBromhal

so you think Builders HAVE TO get 35+% higher than existing, or they'll go out of business.

I haven't seen a builder(s) P&L in probably a decade, maybe eight years. Before I looked up Pulte's P&L, I thought its Operating Margin would be triple of what it is. Furthermore, I was shocked at its margin deterioration y-o-y, especially considering the sales growth. What this is telling me is that Pulte, and I'm assuming other builders, have a cost problem, and they can't keep raising prices forever to offset that. So, something has to give.