So, let's start with the existing home sales market.
The pace of sales appears to have hit bottom. We're been at/near the 5 million units/year level now for nearly two years (b)-- the same pace we saw in the late 1990s (a).
However, the inventory level is still horribly out of line with the historical norm. In the early 2000s, the level stood at 2 - 2.5 million (a), whereas now we're at 4 million (b). In other words, there is still a ton of supply.
In addition, the pace of sales is still way to slow. The historical norm is between 4-5 months of inventory (a), whereas now we're at the 8 level (b).
Let's move onto the new home market -- by far the smaller of the two.
The sales pace is incredibly low -- it's at/near the lowest level in over 40 years.
Inventory levels are also more in line with the historical average as is
the pace of new home sales
What got me thinking about this market was this article from the Financial Times:
Now the tax credit has run out, that momentum has slowed dramatically. “In the last four weeks I’ve seen very weak traffic and weaker activity,” says Mr Romeyn. “It’s not encouraging and it means we’ll have to work even harder to convince people to move forward with their purchases.”I've seen the pro and con arguments about the tax credit. Frankly, it appears we need to extend it indefinitely at this point simply to clear inventory.In May, new residential home construction in the US fell by 10 per cent to a seasonally adjusted rate of 593,000 units, its lowest level in five months, the commerce department said last week. Economists expected to see an impact from the ending of the tax credit, but not such a steep drop.
If the weakness continues, the likely conclusion will be that the tax credit brought forward demand from aspiring homeowners but failed to spur a more fundamental improvement in the housing market. The next big test will be new home sales data out on Tuesday. Economists fear the US housing market could be on the verge of a “double dip” – or even a “triple U”, given the fall in new construction over the winter.
“We are going to have a very sluggish time over the summer,” says Kevin Logan, chief US economist at HSBC in New York.
3 comments:
"If the weakness continues, the likely conclusion will be that the tax credit brought forward demand from aspiring homeowners but failed to spur a more fundamental improvement in the housing market."
Let me put this as eloquently as I can manage:
NO FARKIN' DUH.
Fact of the matter is, we got a glut of supply because developers built in response to a bubble no one did anything to stop. This is not something to "fix". Housing NEEDS to suck for the next decade or so. Houses are originally to live in, not speculate. The demand for housing is supposed to be relatively inelastic.
It's like artificial hearts. If some artificial heart maker reports that sales hasn't been increasing, the idea isn't to create all sorts of government programs to get people to go out and get heart transplants. People would call that crazy. Except houses are similar in that one only needs one good one to live comfortably. Any attempt to exert artificial growth pressure in the market is misguided at best, dangerous at normal and downright evil at worst.
That may make certain economic indicators suck but the economy is more complex than just making a few numbers look good. I've already pounded that point in how unemployment remained high while GDP went up.
I like the analogy of the heart transplant but would probably use my own analogy... that of a dying patient being given adrenalin... or possibly morphine. Not sure which fits best but the result is still the same. Ultimately no matter what is used to get the patient on his feet and no matter what measures you instigate to take away the pain, the long and the short of the matter is that you are simply hiding the reality.
At some point the patient has to recover and this will be a long and drawn out process.
The answer? I don't know. But I sure know that at some point the drugs WILL run out and the pain will kick in.
For housing that is still to come. Measures taken at present are simply prolonging the harsh reality of the pain yet to come.
“Housing NEEDS to suck for the next decade or so. Housing NEEDS to suck for the next decade or so.”
This assumes that there is no ‘pent-up’ demand for housing that could relatively easily absorb the current supply and more to come. I have seen anecdotal evidence in journalistic accounts that increasing numbers of the ’20 something’ generation, relative to that age group in past generations, are living at home with their parents. I.e. that represents pent-up’ demand – IF THEY CAN FIND JOBS that will support buying a house.
In short, as always, the economy comes down to jobs and wages. From the late 1940’s through the 1960’s the ’20 something’ generation of that era could find factory jobs in places like the auto industry. These jobs paid well enough for the workers to buy houses, which created the suburban housing boom of that era.
So those jobs are gone and SURPRISE the housing industry is a state of collapse. Ergo: the US has to define its place in the world economy that pays its workers well enough to by houses etc. Clearly, that is not being done. Unless you believe in the ‘Green Industry’.
Tom
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