Market Commentary

November 2, 2009


Last week I wrote about the disparity between “New Home Sales” versus “Existing Home Sales”. My commentary rationalized the disparity to the cost of construction and the escalating price of commodities due to the weakness in the US$ and the accumulation of US$ by developing nations, most notable to that being China.

This last week New Home Sales fell 3.6%, while big order ticket items such as cars, washing machines and the like increased 1%, and economists forecasted a 3% GDP growth for the 3rd quarter 2009. Add this to the thought process; “remodeling prices” are down an average of 5%-10% across the U.S. With the cost of construction being material and labor it tells me that the labor part is being discounted to accommodate for the rise in material costs. With “New Homes” sales being down, new home contractors are competing for remodeling jobs. This is a great combination for the reason for increasing existing home sales. The competition from the new homes sector could be increased competition from laid of Commercial builders. The SF Chronicle states commercial vacancy rates are now at 14% and 70 projects for new home construction remain on the drawing boards. The S&P/Case-Shiller home price index composite of 20 cities rose 1.2% in August from July 2009. The best performing areas were Minneapolis at 3.2% and San Francisco at 2.8%.