There have been several reports over the last couple of weeks suggesting the number of foreclosed homes being put back on the market will increase significantly heading into the summer months. Some of those reports indicate real estate values will fall as the number of properties available to buyers grows. If so, what does it mean for new home sales heading in the future?

The Wall Street Journal’s Smart Money says the rise in foreclosures being put back on the market is definitely hurting new home sales. In a report published on March 27th of  2012, the Journal discusses the great lengths to which new home builders are going to sell their properties. Yet despite their best efforts builders and real estate developers are not seeing the sort of sales they hoped for.

“To be sure, new home sales are improving slowly,” Smart Money’s Anna-Maria Andriotis writes. “While they fell 2% from January to February, they’re up 11% compared to February 2011, according to the Commerce Department. But their current annualized pace of 313,000 sales last month falls short of pre-downturn figures. In a healthy housing market roughly one million new homes sell each year.“

Andriotis also contends at the beginning of her piece that “new homes still can’t compete with existing properties that get cheaper by the month.”

By Casey Serin CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0), via Wikimedia Commons

Even builders of new homes in the luxury sector are not seeing the type of numbers they’re after. Despite offering never before heard of incentives and employing marketing strategies to convince potential buyers of the cost savings of a brand-new home over a pre-existing one, new home sales are still lagging.

Restoring Market Sanity

Although the sentiment was not born out in the Smart Money report, there are many within the real estate industry that believe current conditions are causing sanity to be restored to the real estate market. Some even suggest that as real estate prices head down to 2003 levels the market is now just beginning to arrive where it should have been all along. If so, that could be an indication that the spike of new home sales at the turn of the century was artificially inflated in the same way prices of existing homes were. Perhaps it also accounts for the sluggish new home market in 2012.

Either way, the reintroduction of foreclosed homes back into the marketplace is inevitable. It’s simply a matter of when the bulk of them will be released. Whenever that happens inventory will rise and prices will fall accordingly. And since there are plenty of luxury homes currently in foreclosure, buyers stand to get some pretty good deals.

In the end all of this information simply proves the fact that the US housing market is still unstable. Hopefully the powers that be will step lightly in order to allow the market to gain its proper footing and grow in a normal, market-driven way. That’s really the only way out.