The New York Times, April 25, 2008. The worst days of the housing slump may lie ahead. Buyers vanished from the housing market in March, as sales of new homes plummeted to the lowest level since the housing recession of the 1990s, the Commerce Department said on Thursday.New homes are becoming more attractive, having fallen 13.3% year-over-year, to a median price of $227,600. That's the biggest drop in 38 years. But even this is STILL too high--not only because builders face high fixed costs for land and materials, but also because they've chosen to build so many MacMansions.
Existing home prices have fallen further and faster. At a time when homebuyers understandably feel very cautious, they're finding existing homes just too good a deal to pass up.
Economics 101 is clearly on display here: lack of ELASTICITY in new home prices leads to SUBSTITUTION of existing homes. Former new home prospects--many who need to buy now--are flocking to the existing home market. Those sales aren't being lost; there's just a change in the sales mix.
The press don't seem to get it, though, and keep blurring the distinction between the two sub-markets, treating each slug of bad news for new homes ars bad news for the housing market in general. This article is a perfect example.
