The new home sales report came out today and it was much worse then expected as new home sales hit 17 year lows. What a surprise. The market did not react well. The most eye opening statistic in the report was the median price for new homes fell 13.3% versus 2007 which was the largest year on year drop in almost four decades!!!
Here is the news from Bloomberg:
"April 24 (Bloomberg) -- Purchases of new homes in the U.S. plunged more than forecast in March to the lowest level in almost 17 years as stricter loan rules and falling prices caused buyers to hold off.
Sales dropped 8.5 percent to an annual pace of 526,000, the fewest since October 1991, from a 575,000 rate the prior month, the Commerce Department said today in Washington. The median sales price slumped 13.3 percent from the same time last year, the most in almost four decades."
``This blows away any hope that things are stabilizing in housing,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. ``It's a negative for growth and for the economy, and it's going to persist into the second half of the year.''
Housing continues to free fall. CNBC reported that new home inventories rose to 11 months which is the highest level seen during this current housing downturn.
So here we are in the spring selling season and prices are dropping faster then at any time in almost 40 years and inventories are at all time highs. There are no signs as the economist described above that we are near the end of this.
As I have said before, bubbles can be very psychological and after seeing these numbers, who in their right mind would try to buy a house right now? Why wouldn't you wait to buy if prices are dropping 13.3% year on year?
Expect this bad new to continue to put more buyers on the sideline which will exacerbate the problem.
How bad are things in housing? Look at what Yale economist Robert Shiller from the famed Case/Shiller index had to say:
"NEW HAVEN, Conn. – An influential economist who long predicted the housing market bubble cautioned Tuesday that the slump in the U.S. housing market could cause prices to fall more than they did in the Great Depression, and bailouts will be needed so millions don't lose their homes.
Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor's/Case-Shiller home price index, said there's a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said.
Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Shiller said.
“Basically we're in uncharted territory,” Shiller said. “It seems we have developed a speculative culture about housing that never existed on a national basis before.”
Many people became convinced that housing prices would increase 10 percent annually, a notion Shiller called crazy."
You are now witnessing a bubble that is in the middle of a total collapse. The good news is at some point the renters of the world are going to be able to get one hell of a deal on a nice house that's affordable. The bad news is it will probably destroy the economy.
For the time being just sit back grab some popcorn and watch the fireworks. We are witnessing an historic economic event.