New Business Model for Homebuilders

NEW YORK (TheStreet) -- The U.S. Census data for new-home sales through July was released Wednesday and several new trends appear to be taking hold in the new-home market.

1. In recent months, median prices are flattening and average prices are rising.
2. Since January, there has been a strong rebound in new home sales.
3. Higher-priced homes are gaining market share.
4. The business model for homebuilders appears to be changing.

All these conclusions are derived from the data update just released.

Price Trends

The market share trends since the beginning of 2007 are shown in the following graph:

Distribution of New Home Prices (2007 - 2009) Source: U.S. Census

Since the beginning of the year, the three-year trends have changed. Higher-priced new homes (above $300,000) have been gaining market share; they had been losing. Houses between $200,000 and $300,000 have lost market share; they had been rising very slightly.

Below $200,000, market share has fluctuated, but is now little changed from January. This lowest-priced segment had been gaining market share since 2007. These short-term trends are shown in the following graph.

Distribution of New Home Prices (2009) Source: U.S. Census

Median new home prices show a flattening trend, even though there was a 5% drop from May to June. The median new-home price may be settling into a bottom.

The average new-home price clearly has a short-term uptrend, even though July had a drop of nearly 3%. The more positive behavior of the average price, vs. median price, reflects the increased market share of higher-priced homes. See the following graph.