We just got the latest new home sales figures for the month of December. Here’s what they showed:
* New home sales dropped 7.6% to a seasonally adjusted annual rate of 342,000 from an upwardly revised 370,000 in November. That missed expectations for a sales rate of 366,000, and it leaves sales at the lowest level since March. The regional figures were all over the map, with sales up 42.9% in the Northeast, down 41.1% in the Midwest, up 5.2% in the West, and down 7.3% in the South.
* The supply of new homes for sale dropped again to 231,000 from 235,000. That’s the 32nd consecutive monthly decline and it leaves the raw number of homes for sale at the lowest level since April 1971. But due to the decline in the sales rate, the “months supply at current sales pace” indicator of inventory rose to 8.1 from 7.6. That’s the highest since June.
* The median price of a new home rose 5.2% to $221,300 from $210,300 in November. That was still a decline of 3.6% from the year earlier level, however.
The new home market continued to wilt late in 2009. Sales slipped to the lowest level in nine months, while pricing remained weak. Ongoing labor market malaise and the tax credit “hangover” effect are two headwinds. Another is aggressive competition from banks and other lenders buried in foreclosures. The buyers who are willing and able to buy are flocking to cheaper, distressed, “used” homes because — to paraphrase Willie Sutton — “That’s where the bargains are.”
I still believe the “three steps forward, two steps back” recovery is in place. But as I’ve said all along, it will NOT be a vigorous, V-shaped affair like we’ve seen in past housing recoveries. We experienced a once-in-a-lifetime housing bubble, not a traditional expansion. That means we shouldn’t expect a traditional, vigorous, cyclical recovery.
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{ 3 comments… read them below or add one }
Mike:
Just read your latest post from Money and Markets. I believe that the government will have to turn on the money presses again. They are between a rock and hard place now — they must inflate to get people the number of dollars promised them by government pensions, social security, etc., etc. (yes, with all the lower purchasing power that entails) if the stock market dives or they must inflate to keep the stock market from diving. Currently, it appears they will not be inflating to save the stock market since that is not politically popular. So that means to meet their trillions of dollar obligations in the not too distant future they will have to turn on the money presses and inflate their way out of their cash flow problem by dumping those fiat dollars into the general economy. Do you agree?
Mike Larson Reply:
February 3rd, 2010 at 8:51 AM
Yes, I believe that as soon as the going gets tough, it’s very likely that Bernanke et al will back down and start firing up the presses again. I believe we are in a situation where both rallies will be capped and sell offs will be mitigated as the government swings violently from “everything’s better, we can raise rates/staunch liquidity” to “oops, we screwed up again. Things are getting worse. Print up some more dollars!”
I agree, but what do you think of the unemployment problem? Couldn’t this take real estate down further? Or do you think the inflationary pressure will overpower the unemployment issues?
I’m also wondering what the impact will be of the very large numbers of Alt-A and option adjusted mortgages. Those rate resets are scheduled in very large numbers for all of of 2010 and 2011. Even more concerning is the fact that many of the homeowners with option arms are selecting the smallest payment option (negatively amortizing). That combined with some rough unemployment numbers could have a very substantial impact on RE and forclosures.