Interest Rate Roundup

Thursday, January 29, 2009

New home sales collapse 14.7%

Holy moley! New home sales fell off the table in December. More details:

* Total sales collapsed 14.7% to a seasonally adjusted annual rate of just 331,000 from a revised 388,000 in November (previously reported as 407,000). That was way, way below the forecast for a reading of 397,000 and the lowest level of new home sales in recorded U.S. history (the data goes back to 1963). Sales readings for October and September were also revised lower, by 13,000 and 8,000 respectively.

* The raw supply of homes for sale continues to decline -- to 357,000 in December vs. 397,000 in November. I have been highlighting this trend, which results from the dramatic cutback in home construction, for a long time. However, because the pace of sales collapsed, the "months supply at current sales pace" indicator of inventory rose to 12.9 from 12.5. That's the highest on record as well.

* The median price of a new home dropped 6% to $206,500 from $219,700 in November. Prices were down 9.3% from the year-earlier reading of $227,700. New homes are now the cheapest they've been since December 2003 ($196,000).

So much for optimism about the housing market. While existing home sales held their own in December, new home sales fell off the table. In fact, we have NEVER sold this few homes in any month since the Census Bureau started tracking in 1963. Not even in the early 1980s, when mortgage rates were in the 18% range. Sobering news indeed. If there's a sliver of good news, it's that the raw supply of homes for sale continues to fall. Still, the plunge in the sales rate drove the "months supply at current sales pace" indicator of inventory to the highest level ever.

These figures just underscore the fact that it's not all about mortgage rates. Surging unemployment is a much more important factor when it comes to the decision to buy a home. If you're worried you're going to lose your job, you don't care if 30-year mortgages are going for 3% or 8%. You're not going to buy a house. And unfortunately, the news on the jobs front is awful - just this morning, for instance, we learned that continuing jobless claims hit a record high in mid January.


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