Thursday, April 24, 2008

We're Nowhere Near the Bottom In Housing

From Marketwatch:

U.S. home builders have slashed their prices by a record amount, but sales still plunged by 8.5% to a 17-year low in March, the Commerce Department estimated Thursday.

The decline in new-home sales to a seasonally adjusted annual rate of 526,000 was much weaker than the 577,000 pace expected by economists surveyed by MarketWatch. See Economic Calendar.

The report gives little hope that the housing market is near a bottom. February's sales pace was revised lower to 575,000 from 590,000.

New-home sales are down 36.6% compared with a year ago and are down 62% from the peak in July 2007.

The figures likely overstate the number of sales because they don't account for canceled sales, which have ballooned. The report is based on contracts signed, not sales closed.

Let's take this in a bit of a reverse order.

1.) These figures are likely overstated. That means we can probably expect downward revisions -- like we saw in February.

2.) Dealers are slashing prices (which probably doesn't include incentives) and yet sales are still down big. That means we have a massive inventory overhang.

For those of you who want a more in-depth explanation of why I think housing will be a wreck for the foreseeable future, go to this link. Here's the short version.

-- There's a boat load of inventory

-- All of the foreclosures we are seeing will simply add to that inventory.

-- Starting in 2010 and going through 2011 we have a second wave of resets

-- The US consumer is already in debt up to his eyeballs,

-- The US consumer hasn't seen an increase in real median home income since 2001, and

-- job growth id decreasing.