New Home Sales Plunge to Lowest Level in 16 Years
- Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped further at the start of the spring sales season. The median price of a new home in March compared to a year ago fell by the largest amount in nearly four decades.
- The Commerce Department reported Thursday that sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991.
- The median price of a home sold in March dropped by 13.3 percent compared to March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.
- The dismal news on new home sales followed earlier reports showing that sales of existing homes fell by 2 percent in March. Housing, which boomed for five years, has been in a prolonged slump for the past two years with sales and home prices falling at especially sharp rates in formerly boom areas of the country.
- For March, sales were down in all regions of the country, dropping the most in the Northeast, a decline of 19.4 percent. Sales fell by 12.9 percent in the Midwest, 12.5 percent in the Midwest and 4.6 percent in the South.
I am surprised the housing stocks are not up 50% on this news. I mean, this clearly signals the worst is behind us and it's all upside from here (right? Bueller?). Maybe the homebuilders need to start doing writeoffs to the tune of $10 Billion or so. That seems to get financial stocks to run up 20% on "not as bad as we expected and everything will be fine in 6 months".
Again, the quicker home prices fall, the better it is for the economy - people don't realize that, but that's just the reality. The less, as a % of income, people need to spend to put a roof over their head, the more they can spend on luxuries... like say... rice. And the more we spend on luxuries like... wheat... the quicker we can get this consumption culture, that is 70% reliant on people spending more than they have... going again.
On the dark side, while I believe we are now in the 3rd or 4th inning (not 9th inning like the talking heads keep telling you) of the correction - the more I see the total disregard for inflation by the powers that be (oh yes they will talk a good game next Wednesday just like they talked a good game about how they care about inflation while cutting rates 300 basis points the past 6 months) - the more I believe housing prices will fall farther than I first anticipated. [What Should Median House Prices Be Today?] People are getting poorer in real terms. And less people will be able to come up with the money for down payments... the reality is wages have not kept up with inflation this entire decade.. and that was with inflation at far lower rates than we've seen the past 18 months. So more and more people are losing buying power at a faster rate. But keep the spin going ... let's talk about how inflation is nearly nonexistant and this is a short shallow slowdown that we will be out of "in 6 months".
Just stare at the chart on this link for 30 seconds every time your cortex tells you to believe the pundits and the "housing recovery is imminent" [Unintended Consequences of the Coming Socialization of the Housing Market]
** Note if you live in Texas, the Western Plains States, or in a farming community - ignore everything above - times are good! :)
Short spin
2 comments:
I totally agree with your timeframe. Meanwhile more arms are set adjust and people can't refinance becuase of the decline in property values and foreclosures continue to happen at a steady pace.
Yes there is a lag effect
exclude the subprime people - some of which never even made it through the first 2 years before defaulting. That was just the canary in coal mine.
The Alt As and prime are going to be the next one, and 10% (going to 15%) are underwater as a whole.
They will keep staying in home, some drawing on credit cards, and 401ks to keep going. Others will just walk away. Those that tried to stay in, will default by this fall or winter. Then it takes 6 months for house to go on market.
So all this new foreclosure will hit the market, on top of the inventory that is out there... in late 08, early 09, mid 09. That should be the peak of inventory.
And again, when housing rebounds its not going to return 20% in 1 year like I think people have a goal of right now. These are not stocks. They used to be 4-5% a year appreciation items. Not 20-25%.
If we have any uptick in inflation or unemployment, I'll push out all my targets further.
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