New & Existing Home Sales Alarming

Sales of new single-family houses in July 2010 were at a seasonally adjusted annual rate of 276,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.4 percent (±10.8%) below the revised June rate of 315,000 and is 32.4 percent (±8.7%) below the July 2009 estimate of 408,000.
The median sales price of new houses sold in July 2010 was $204,000; the average sales price was $235,300. The seasonally adjusted estimate of new houses for sale at the end of July was 210,000. This represents a supply of 9.1 months at the current sales rate.

The annual-on-annual plunge of 32.4% is more significant.  Analysts have asserted that the slowdown is the natural reaction to the end of the homebuyer tax breaks, but this proves that something else is going on.  Last summer’s numbers were nothing to cheer, and we’re down almost a third from there, before the tax breaks went into effect.  Why?  Simply put, a lot more people are out of work since last year, and we have much less demand as a result.

Washington Post: Sales of new homes dropped sharply last month to the slowest pace on record, the latest sign that the economic recovery is fading.The Commerce Department said Wednesday that new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. The past three months have been the worst on record for new home sales.

Weak sales mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Associated Press:  Beyond geography, the sales numbers vary depending on the price of the home.

The biggest drops in sales are among homes in the low and middle price ranges. For example, 47 percent fewer homes in the Midwest priced between $100,000 and $250,000 sold in July, compared with July last year. By contrast, sales of million-dollar-plus homes in that region actually rose slightly year over year.

This spring, government tax credits helped drive sales, especially among first-time buyers of less expensive homes. But those tax credits have expired now, and many people rushed to lock in sales before they did.

Since then, the number of homes lingering on the market has swelled to nearly 4 million in July. At the current pace of sales, it would take about a year and two weeks to sell all those homes and get them off the market. A healthy level is six months.

This is just a hangover from the gimmicky stimulus policies put in place by Barack Obama.  The homebuyer tax credit got already-qualified buyers to make purchases they would have made in the near term anyway, and subsidized them unnecessarily with borrowed money that added to the deficit.

In order to stabilize the residential markets, jobs have to return and prices have to stabilize.  The Obama administration has gotten in the way of both processes.  Thanks to ill-advised taxpayer-subsidized interventions, prices have remained unrealistically high, and no one wants to buy until they pay the right amount for the value of their investment.  And until we quit penalizing capital and introducing massive ambiguities into regulatory regimes and expanding them, jobs won’t get created and new buyers won’t materialize anyway.