The Commerce Department said on Wednesday sales of newly built single-family homes dropped 11.2 percent to an annual rate of 309,000 units, the lowest level since records started in 1963, from 348,000 units in December.It was the third straight monthly drop and the largest percentage decline in a year. Analysts, who had expected a 360,000 unit pace, said bad weather was partly to blame and warned of more of the same for February.
"There is no doubt that January and February are going to be messy months for housing, given the severe weather conditions, but that does not take away from the fact that the housing sector has taken another big step back, even with government aid," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
Let's go to the data:
This look more like a continuation of the bottom forming in New Homes sales. I described the situation like this a few weeks ago:
The pace of new home sales is still at the bottom. It rebounded a bit, but in reality the best way to describe the current pace of new home sales is "bumping along the bottom."
This is in line with new home construction whose chart is similar.
2 comments:
This makes sense if you consider that the only real sustainer of the housing market has been substantial amounts of government aid. The Fed and various programs have been trying to put a floor under the market. But ultimately until people have jobs and the prospect of continuing to have those jobs, they aren't going to risk buying houses.
What I'm a bit concerned about though is that the government props to the market are likely going to go away before organic demand returns. I know many people who are looking to buy right now because of the various government programs but, when they end who's going to be buying? Anybody who's been vaguely considering buying a home is doing it right now. So we may see the floor fall out again for a time as demand vaporizes.
We just had a lesson in Reading Comprehension 101. Here's a follow-up lesson: denotation vs. connotation.
Denotation is an explicit meaning. Connotation is an implicit meaning. The difference is critical in anticipating how readers will interpret your words.
In this case, bonddad's mistake was using the word "bottom". This word has an explicity clearly meaning, and in that sense it was used correctly. Housing has indeed bottomed out. Unfortunately, traders use it only in the context of a temporary and abnormally low level.
The problem is that housing hasn't "bottomed" in the sense that it's abnormally low. According to data posted on this very blog, prices merely returned to where they should've been had they tracked inflation starting from thirty years ago. Thing is, the bubble inflated so long that the business has lost all sense of perspective. If you gorge yourself silly on 5000 calories a day for thirty years, the first time you limit yourself to a healthy 2000 you'll feel like you're starving.
Furthermore, any attempt to "prop up" housing prices, either by government intervention or private speculation is de facto the creation of another "bubble". As much as real estate influences the economy, do we really want to open that can of worms again?
To reiterate: on average, housing is not abnormally low. It's right where they should be. The loudest complaining is by a business that has grown mordibly fat complaining that it's starving.
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