Rock Bottom For New Home Sales? Let’s Hope So

OK, you know the gruesome numbers on new home sales. Sales down to a SAAR of 300,000 – the lowest number recorded since 1962 when the statistic started to be tracked. March and April sales revised substantially lower and months of supply zooming from 5.8 in April to 8.5 in May.

From Calculated Risk, here’s the carnage in graphic form (click for larger image). Note how atypical the recovery in new home sales or rather lack thereof is compared to previous recessions.

You’ve heard that the collapse stemmed from the end of the homebuyer tax credit as whatever demand that existed in the market was simply pulled forward into the period in which the credit applied. Also, the downward revisions to the March and April numbers might well indicate that demand was not as strong as originally thought.

So, any rays of light here? Well, maybe.

If the politicians can keep their hands off, then we might well look back at this at the true bottom of the market. The subsidies that have been thrown at the housing market have prevented that discovery and, perversely, might well have held down real organic demand. Potential buyers who could look beyond the immediate gratification of a free $8000 may have viewed buying in during the subsidy phase as buying in the midst of just another bubble, this one overtly courtesy of the feds.

It might take a few months, maybe longer and prices in some markets are likely to take another hit, but if buyers begin to sense that there isn’t going to be any more backsliding and aren’t barraged with media discussion of the artificial demand created by government programs, they might begin to believe that a new home represents a good use of their money. Few if any markets function normally if participants have a sense of instability and uncertainty. Nothing so creates such an environment as do subsidies.

Let’s hope that we turn a corner here and admit that the housing market needs to start walking on its own. It’s pretty clear that gobs of money can’t put Humpty together again. Time and a little inattention might however get the job done.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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