The total inventory of new homes for sale is at the lowest level in a generation. This means that a marked increase in demand for new homes would lead to a big increase in new home construction, which would be a tremendous boost to the economy. This would increase construction employment -- a truly terrible part of the job market right now -- and also increase durable goods purchases (appliances and furniture). In short, a big increase in new home construction would be a big help to the economy.
And -- the elements of a surge in new homes sales are in place.
Housing affordability is at incredible levels right now as well -- meaning this is really a great time to buy a home.
Consumers are also in better shape to purchase a home.
Consumers have been cutting back on their total mortgage debt which has led to
A much better financial obligations ratio. In addition,
Consumers have been saving more money so they can put more money down.
In short, the new home sales market is ready for a sharp turnaround. The real question is what would spark that move in the economy? The answer -- as with consumer spending -- is jobs. Consumers need a sign from the economy that the worst is over. And the best sign of that would be 3-5 months of strong job gains. Until we get that, we're treading water.
5 comments:
I've heard that many people who want to move can't because housing prices are so low and they won't be able to sell their house for what they think it's worth. Do you think that a rise in house prices is necessary to make people willing to buy new homes?
There are many factors that have been at play for a while which has the potential to spring at any time. Savings rate has gone up quite a bit, the fed policy has been very relaxed, capacity utilization is low, many businesses could be considered understaffed, and there is a lot of hoarding by businesses that has to be put into play eventually. Will it happen is, like you said, up to the consumer and business owners and whether they can shake this negative sentiment.
BD:
It seems to me that you've talked about this in the past - isn't a good part of the decrease in TDSP due to bankruptcies and foreclosures wiping out mortgage debt? A reduction in debt load is good, it's just that it may be in a form that is not particularly helpful to home sales. Not that I wouldn't like to see sales and construction pick up again, but I'd rather not get my hopes up over nothing.
Consumers have been saving money so that they can buy more things with cash rather than renting them from the bank.
"Consumers need a sign from the economy that the worst is over. And the best sign of that would be 3-5 months of strong job gains. Until we get that, we're treading water."
Sadly, two decades of offshoring indicate to me this coiled spring is going to rust in place.
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