February 24, 2010
Surprise, Surprise Or Not So Much So?
"Sales of new homes in the U.S. unexpectedly fell in January to [an annual pace of 309,000] the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand....Purchases of new homes have declined from an all-time high of 1.39 million reached in July 2005. They have declined 6.1 percent from January 2009."
∙ U.S. Economy: New-Home Sales Decline to Record Low [Bloomberg]
First Published: February 24, 2010 2:00 PM
Comments from "Plugged In" Readers
Stupid Question: Why are new home sales numbers reported separately or broken off from total home sales?
Posted by: ZapBrannigan at February 24, 2010 3:56 PM
There are various reasons to report new home sales separately from total home sales. It gives you a different indicator for the economy -- e.g. the health of developers, construction, etc.
In addition, if you read Calculated Risk, the author believes that housing starts are typically the leading indicator of the economy doing well. Check out a post from today:
Posted by: corntrollio at February 24, 2010 4:00 PM
I like that blog.
A question, though - shouldn't the numbers on the graphs be normalized per-capita, in addition to being seasonally adjusted?
We had 180M people in 1960 and 225M in 1980.
So to normalize this graph to compare to, say, the recession in 1982:
2009: 310k sales / 305M ppl = ~.001 per capita
1982: 325k sales / 180M ppl = ~.0018 per capita
That is to say, new home sales #s per capita are about 40-45% lower than the low point during the recession of 1982. Can't exactly color me optimistic at the moment.
Posted by: Greg S at February 24, 2010 5:27 PM
In order to compare 2009 to 1982, yes, you would likely need to normalize it somehow (population, amount of existing housing stock, number of households, etc.). But my impression is that CR intends that chart as a relative marker of whether residential investment is increasing, not as a way to compare previous years in isolation.
What you're describing is a common problem I've seen with certain job loss charts and other charts that compare things over time.
Posted by: corntrollio at February 24, 2010 5:46 PM
I find all these "unexpected" findings hilarious.
Of course there was a major drop in January. It's because it was the first month after the First Time Homebuyer Credit was supposed to expire. Even though it was extended, many buyers didn't know that at the time and thus they made sure they closed before the initial deadline. (in other words, it pulled demand forward). we saw the exact same thing with cash for clunkers. I have no idea why it would be unexpected after the FTHB credit expired
housing=the US Government right now. Watch the US Govt and you will have an idea of what housing will do.
That's why I eagerly await April/May/June numbers. Those sales will occur after a lot of govt support is (supposedly) wrung out of the system.
The govt has told us it will will manipulate rates and the mortgage market in a massive way for sure until 3/31/2010. this means that it will affect many new/used home sales through mid to late May as many sales have a 4-6 week closing time frame
FWIW: that is likely why they chose 3/31/2010. Because housing is seasonally strongest in May through July. Thus, if there is ever a time where "natural" demand could take over for government support it would be May through July. Hence, you want to phase out govt support 1-2 months ahead of this. (since sales close 1-2 months after contracts are signed).
I still have strong doubts that the govt will be able to pull all the support away. they will likely phase out some things, but others they won't be able to phase out. By far the hardest to remove will be the Fed Purchases of MBS and the second hardest is probably the Fed Purchases of Treasuries (which are the most important programs). Easiest will be the First Time Homebuyer Credit. (which is the least important)
Luckily (sarcasm), there will be many other supports that will be covertly expanded in opaque ways: especially those that center on Fannie/Freddie/FHA. They can continue this for a while, so long as they can hide the losses from the public (and hide the fact that the taxpayer is responsible for unlimited Fannie/Freddie/FHA losses)
Posted by: ex SF-er at February 25, 2010 4:24 AM
I expect February will be dismal as well. Still have the issue of demand that was pulled forward (although less so then in January, the effect will fade as we go forward) but also the weather on the East Coast in January will likely have slowed what little activity there normally would have been in January. Although now that think about it does this figure count completed sales or houses going into contract? If its the latter then the January number might have been effected a bit by the weather.
Posted by: Rillion at February 25, 2010 9:27 AM
The weather is always bad in January. I doubt the difference between 2" of snow in a week and 20" of snow in the same week the next year makes that much difference. I'm sure it's some, but it can't be much.
A bigger problem is unemployment and durable goods orders, both are headed worse. Not good for real estate anywhere.
Posted by: tipster at February 25, 2010 10:47 AM
Unemployment sort of stablizied over the final parts of the year and number of new unemployed is down from its peak which was last year at this time. So hard to say that unemployment is headed worse compared to last year at this time it was headed to way worse then where its headed now.
There is a huge difference between 2 inches of snow and 2 feet of snow on how likely someone is to go outside.
Posted by: Rillion at February 25, 2010 12:14 PM