The U.S housing market recently experienced the largest price drop in two years. New home sales dropped to a six month low in August, despite an upward trend in the preceding months.
Figures for August show an annual home sales rate of 295,000, a 2.4 percent drop from 302,000 in July and a 2.7 percent drop from 303,000 in June, according to the Commerce Department.
The average price of a new home dropped to $209,100 in August, a 7.7 percent decrease from August 2010 and the most severe year-to-year drop since July 2009, according to The Telegraph.
“It just shows people are risk-adverse right now. They don’t want to take the risk…they want to have their money and they don’t want to invest in anything,” said Rocky Guo, a second year MBA Business student.
“People are afraid of spending money. They want to keep the money. This is probably one of the reasons that the prices of the housing market are going down,” added Jeffrey Huang, also a second year MBA Business student.
Investors may have been swayed toward buying pre-owned homes because of the lower price due to repossession. Previously owned home sales climbed to a five month high in August, with distressed properties making up 31 percent of the transactions, according to The Telegraph.
Declines in new home sales were evident all over the country. A 13.6 percent decrease occurred in the Northeast, a 6.3 percent decrease in the West, and a 2.4 percent decrease in the South. There was, however, an 8.2 percent increase in new home sales in the Midwest, according to RTTNews.com.
Diminished consumer confidence, high unemployment rates, and limited access to credit are the major factors attributing to the slump in new home sales. The European debt crisis has also played a role as an uncertain global economy continues to show no sign of improvement.
Economists predict a slow return to normal in the coming months. A new home sales rate of 700,000 is what economists believe is needed to get back to a sturdy market in the U.S., more than double the amount recorded for August.