We just got figures on the new home market in May. Here’s a recap:
* New home sales collapsed a whopping 32.7% in May after jumping 14.7% in April. That left the seasonally adjusted annual rate at 300,000, compared with a revised 446,000 in April and a consensus forecast of 410,000. That is the lowest level in the history of the data, which goes back to 1963. Regionally, sales dropped 23.9% in the Midwest, 25.4% in the South, 33.3% in the Northeast, and a whopping 53.2% in the West.
* The raw number of homes for sales slipped slightly to 213,000 from 214,000 in April. That’s the lowest level going all the way back to November 1970. Compared with a year earlier, inventory was down 26.8%. The months supply at current sales pace indicator of inventory surged to 8.5 from 5.8. That’s the highest since June 2009.
* Median prices fell 1% to $200,900 from $202,900 in April. On a year-over-year basis, prices tanked 9.6%, the biggest such drop since July 2009.
The May new home sales figures were so awful, I’m at a loss for words. Sales imploded by almost a third, with a whopping 53% plunge out West. While raw inventory held steady at the lowest level in almost four decades, prices dropped by almost 10% from a year ago as demand cratered. That’s the biggest drop in almost a year.
We all knew there would be a housing hangover from the expiration of the tax credit. But this decline takes your breath away. Something else is at work, and it’s the labor market. We simply aren’t creating private sector jobs in this country, and until we start doing so, we’re not going to see healthy housing demand. No wonder builders are getting much more pessimistic, construction activity is dropping, and lumber prices are taking an Acapulco cliff dive!
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I have been looking for any sign of hope that we will be seeing an end of the housing depression, but it has gone from BAD, then BADDER, then BADEREST, now it is BADERESTIST
Are there any other words to use?
Always good reading. One presumes the housing numbers are skewed by the end of the government subsidy. But just the fiscal one – not the acccomodative monetary one. No Job = No House is a fine equation but the level of unemployment appears to be stabilising. My apologies therefore for being a broken record on the fabric of the rug which WILL be pulled – its not unemployment but interest rates (and an existing anticipatory reluctance to lend) driven by trends in bond prices. Specifically it is the impact of incremental mortgage payments within the context of domestic balance sheets which entered the recession fully extended and exposed. The re-set, re-set mortgage graph (the intial re-set one from Credit Suisse tails off dramatically start of 2011) shows the level of domestic exposure to cost of capital increases in more creditworthy borrowers streaming into 2013 and beyond which combines with the lack of a cash cushion due to historic low savings rate and/or a spell of unemployment.
The UKs big housing bust lingered from 1987 -1994 – I can’t see why this malaise will not match or exceed that length. The statistic one wants to see is a return to decent yields for rentals properties – around Arlington VA which is a reasonably robust market due to Govt, one can see yields of 5.5% on today prices. The rule of thumb ideal is 8% yield – thats would entail a meteroic drop in prices (c25%) because rents ain’t rising any time soon. For Arlingtonians – heaven forbid the government should cut spending…..!
“More than a year ago in these cyberpages, I told you that housing was stabilizing. All my indicators pointed to an improvement in conditions ” Mike Larson.
Well Mike, your interpretation of the “indicators” were wrong that time (or maybe not in enough depth), but at least you had the courage and honesty to admit it. Perhaps you would be better informed if you were to look at : http://www.doctorhousingbubble.com/. from time to time, his stats are as good as John Williams and he is one of a group of contrarians who saw this chaos coming long ago. Also the BDI is dropping like a stone – further supporting our current view – a long L could be in the cards.
I have followed Martin and team for several years, good copy but too hyper for me; seeing tigers in the shadows etc…. the Austrians http://www.thedailybell.com/index.asp. have their feet on the ground IMHO.
I like ‘options’ on housing and land. In a changing world perhaps collateralised assets may offer capital gains (bit like zeros). I am informed that houses+land can be bought for as little a $1 in Detroit (penny shares anyone?) but land will always retain productive value regardless plus you can actually grow stuff too (see emerging Urban Farms)! Maybe 5-10 year call options on tens of thousands of collaterised real estate units will offer future security of investment (without cost of ownership) as hyperinflation drives asset prices going forward. After all Weimar stabilised the Mark using the RentenMark on the other hand perhaps: “This Time is Different”?