According to a recent article published in your journal “New-Home sales Fell 3.3% in February” (2014) by Jonathan House, the drop in home sales is attributed to the rising mortgage and severe weather conditions. As noted in the article, the last year has been difficult for…
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This is a considerable drop, when compared the previous year’s estimate of 12%. This has also caused new home building to slow down which directly affects economic growth. Besides, the effect of this drop to the economy, those planning to buy new homes may have a smile as the pressure on home prices is expected to ease up with a notable drop of 1.2% compared to the same period in 2013.
After reading the article, I would like to share few ideas that crossed my mind concerning what the editor states about economic growth and the real reasons behind this drop. For a start, I believe there are various reasons that are responsible for this drop and severe weather and rising mortgage is only a fraction of these reasons. As it is a trend, new homes only account for 10% of all home sales; therefore, a drop in sales for home sales does not necessarily mean that homebuyers have slowed down. This means that, despite the severe weather conditions and rising mortgage, new home sales could have gone down after losing potential buyers to older house sales. An article in 2013 by Cho highlighted that Shadow Inventory held by the GSEs and US-HUD largely outnumbered REO. This shows there is a large supply of homes that could come to market and sustain the current demand, leaving little room for new homes. In support of this opinion, another article by Gundlach specifies that the housing market is soft and has been significantly slowed down by the aging pool of loans in the foreclosure process. The forecast done by National Association for Business Economics on this year’s housing investment is a valid reason that, despite the severe weather conditions, new home ownership will still experience slow growth perhaps, the rise in mortgage being a more viable reason.
Other significant factor in the drop, in new home ownership, is the increasing cost of
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