Price Cutting Fails to Boost U.S Home Sales

Despite massive cuts in price ( Las Vegas developer KB Home started slashing prices several months ago and in the 1,400-home Huntington community, a subdivision of two-story stucco houses west of the famed Strip, homes that started at $320,000 a year ago are now listed for $270,000,) the US housing market continues to decline.
According to the National Association of Home Builders, sixty percent of builders cut prices last month to no avail. The reasoning is that buyers are wary of buying a new home for fear that another price cut may be in the offing afterwards and they will have to eat a portion of the sale price immediately. There’s a certain twisted logic to this thinking that’s leaving builders in a no-win situation.

Having already cut real estate prices in an attempt to shift inventory they have already shown a willingness to negotiate the price, so why not see if you can get another cut?

The other issue is recent buyers. How much fun is it to see an identical house to your recent purchase on the market at a 25% reduction. While the building companies may be able to afford to settle for this, the typical homeowner is likely faced with the prospect of a negative equity situation, where their mortgage out values the property.

The real question is when is enough, enough? At the top end of the market, things seem to be business as usual, but, clearly the mid and lower market was in need of a shake up. Supply outstrips demand by a considerable margin at the moment. Little consolation for recent buyers, but normal service is expected to be resumed at some point in the future. Now, where’s that crystal ball?