I Don’t Like New Homes Either
The bond market appears ready for a trend; unfortunately historically the trends in rates early in the year tend to be bearish ones.
I don’t want to read too much into price action the last week or two of the year, but bonds sold off on yesterday’s very strong Existing Home Sales data, and did next to nothing on the very weak New Home Sales data. New Home Sales fell 11.3% from last month’s number, which itself was revised downward. The net result was that Sales were expected to be 438K this month (annualized) versus 430K last month; the actual print was 355k plus a -30k revision.
Of course, New Home Sales is a much smaller part of total home sales than are Existing Home Sales, and so in the grand scheme of things are less important economically. However, from a prognosticator’s standpoint right now we think we know the following: New Home Sales have been goosed recently by government incentives, so all else equal are higher than they would otherwise be, while the turnover of Existing Homes is flattered by distressed sales of bank REO property and other sellers who have been waiting to sell into any reasonable bid. So there is a plausible explanation for some of the strength in EHS, but the weakness in NHS is a bit of a conundrum and a worry.
I showed one chart yesterday. Let’s put them side-by-side:
12/31/2003 = 100 in each case (Source: Bloomberg)
Well, something is going on here. The degree of decline didn’t really worry me, but the fact that one series has launched and one has languished is a real pickle.
I think we will have to look beyond home sales to figure out what is happening to the economy!
This gets to the heart of the bigger matter: with the degree of government intervention in autos, housing, capital asset markets, and money & banking, it is more difficult than ever to find unpolluted series. The economy is recovering. But is it an organic and self-sustaining recovery? It doesn’t seem to be, at present. Can it become one? This is the $64,000 question, and I don’t know the answer yet. But I am skeptical.
Leave a Reply to Michael AshtonCancel reply
Have you tried regressing this versus the change in stock available for sale? Maybe it’s something to do with the relative supply of new versus existing homes…new home construction plummeted while the stock of existing homes on the market for sale has increased quite a bit with the foreclosures. Not sure if there’s anything there, but worth having a look… I noticed the divergence as well and it is a bit perplexing. Is the govt tax credit only for buying a new home, or does it apply to all home purchases?
I haven’t, but that’s my suspicion of the cause. The tax credit is for buying any home; since I would guess that most new homes are more expensive than many existing homes perhaps the tax credit (recently extended from new home buyers only to repeat home buyers as well) has a disproportionate impact where the supply is.
Anecdotally I can report that several of my friends have bought first-time homes recently, and none of them was a new home, but that’s not really evidence. 🙂