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Shrinking distressed inventory, new construction may hurt existing home sales

Buyers prefer new construction to existing homes

House being built

One of the boons for homebuyers over the past couple of years has been the large inventories of distressed properties going through foreclosures and short sales.

The great news is that the foreclosure inventory across the nation continues to improve, according to the latest CoreLogic May National Foreclosure Report.

As a whole for the month of May, there were 47,000 completed foreclosures nationally, a drop from 52,000 in 2013, a year-over-year decrease of 9.4%.

While some are thinking of selling as the impact of this substantially discounted competition has disappeared, sellers should know that there is a new form of competition about to hit the market that, by and large, homebuyers have a bias for – new construction.

Construction spending flat-lined in May, rising a statistically insignificant 0.1%, far below analyst expectations, according to data from the U.S. Census Bureau.

Homebuilding took a big hit, with private residential spending falling 1.5% after rising 0.5% the month before.

However, most analysts expect that longer-term, residential construction will rebound, possibly as soon as the next report on spending, which will cover June activity.

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Trulia, meanwhile, provides the data that show that homebuyers actually prefer new construction to existing homes.

Click the graph to enlarge.

Given the turnaround from construction start to being ready for market, sellers of existing homes in markets where construction is running hotter may want to hit the market sooner rather than later.

Click the graph to enlarge.

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