Interest Rate Roundup

Wednesday, January 27, 2010

New home sales slip, hit 9-month low

We just got the latest new home sales figures for the month of December. Here's what they showed:

* New home sales dropped 7.6% to a seasonally adjusted annual rate of 342,000 from an upwardly revised 370,000 in November. That missed expectations for a sales rate of 366,000, and it leaves sales at the lowest level since March. The regional figures were all over the map, with sales up 42.9% in the Northeast, down 41.1% in the Midwest, up 5.2% in the West, and down 7.3% in the South.

* The supply of new homes for sale dropped again to 231,000 from 235,000. That's the 32nd consecutive monthly decline and it leaves the raw number of homes for sale at the lowest level since April 1971. But due to the decline in the sales rate, the "months supply at current sales pace" indicator of inventory rose to 8.1 from 7.6. That's the highest since June.

* The median price of a new home rose 5.2% to $221,300 from $210,300 in November. That was still a decline of 3.6% from the year earlier level, however.

The new home market continued to wilt late in 2009. Sales slipped to the lowest level in nine months, while pricing remained weak. Ongoing labor market malaise and the tax credit "hangover" effect are two headwinds. Another is aggressive competition from banks and other lenders buried in foreclosures. The buyers who are willing and able to buy are flocking to cheaper, distressed, "used" homes because -- to paraphrase Willie Sutton -- "That's where the bargains are."

I still believe the "three steps forward, two steps back" recovery is in place. But as I've said all along, it will NOT be a vigorous, V-shaped affair like we've seen in past housing recoveries. We experienced a once-in-a-lifetime housing bubble, not a traditional expansion. That means we shouldn't expect a traditional, vigorous, cyclical recovery.


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