According to Commerce Department figures, new home sales in February, 2010 dropped to an all- time low. However, the inventory of homes-on-the-market showed four straight months of increases. Some sources blamed this decline on severe winter blizzards and floods, but a more reasonable explanation is that severe 2009′s job losses and high unemployment are the real culprits!
The decline in the sale of new homes was unexpected only by people who look at our economy through rose-colored glasses. The drop in new home sales is undoubtedly affected by continuing high unemployment, but to blame it on blizzards and floods is ridiculous. The U.S. lost over 4.1 million jobs in 2009, and the effect of that is undeniably real.
The 4.1 million U.S. jobs lost is clearly the largest number of job losses since we began keeping records back in 1940. But many believe that we have come out of this recession on our own accord.
The Housing Supply Continues to Go Up
The supply of homes at the current sales rate increased to 9.2 months, up from 8.9 months in January, 2010.
Housing, triggered the worst recession in seventy years as the sub-prime mortgage market collapsed in foreclosures. Nevertheless, it showed signs of recovery in 2009 thanks to an $8,000 first-time buyer tax credit that boosted sales ahead of its originally scheduled November, 2010 expiration date.
The government’s extension of this tax credit for contracts that were signed by April, along with its expansion to include some current homeowners, failed to boost sales at all during recent months.
New-home purchases have always been considered a leading indicator, since they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect many contracts that were signed weeks or even months earlier.
The current weakness in the sale of new homes sales should be reflected in weak figures for the sale of existing in the months ahead. Buyers are now being super-cautious and conservative. The housing market needs to see at least some moderate inventory clearing, but inventories are presently going back up to 2009 levels.
2010 should certainly be a year where housing comes under pressure once again. That’s because the government will shortly be withdrawing from the direct purchase of MBS. Time will tell, but we should know quite shortly just how mortgage rates will react. In all likelihood, mortgage rates will rise significantly, and this could deal a major blow to the housing recovery that many people say never occurred.