I don't want to make too much of this number because again, other than for home builders and the construction industry, new home sales mean little (10% of transactions) compared to existing home sales (90%) which we saw reported yesterday. But, I do want to stress how pathetic these numbers are in light of the tax credit (which the May numbers still included), record mortgage rates, FHA giving out loans to anyone with a heartbeat and 3.5% down (and in many states you can use the tax credit as the 3.5% down), and near record affordability. I repeat this often but what do you think the housing market would look like at 6% mortgage rates (historically very low) along with no handouts from government and the private market setting down payment rates, rather than banks happy to make the 3.5% loans because they can shuffle all the risk to the U.S taxpayer? Bleak.
- Housing data in May have been dismal. Housing starts fell 10%, building permits fell 5.9%, mortgage applications dropped, and the home builders' index fell by five points. The only bright spot was mortgage rates, which stayed very low.
- Sales of new single-family homes plunged 33% in May to a record-low level. Sales dropped to a seasonally adjusted annual rate of 300,000, the lowest since records began in 1963. April's sales pace was revised down to 446,000 compared with the 504,000 originally reported. March's sales were also revised lower.
- The results were much worse than expected, and economists had expected a 20% decline to a seasonally adjusted annual rate of 405,000.
- The inventory of unsold homes represented an 8.5-month supply at the depressed May sales pace, up from 5.8 months in April and the highest in nearly a year.
Note these revisions. How does the Commerce department get home sales wrong by a factor of 10%. And these are the folk we are paying on average $71K - almost double that of the private sector wage - because of their skill versus the private sector lackeys? Yet they are unable to calculate something so simple as new home sales? Oh wait, we know the game - report a better than expected number which pleases the stock market and then revise the figure down a month or two later. If so, today's 300,000 might be even worse in 30-60 days!
Here is the problem for those who live in Cramer-ville who think the low mortgage rates are going to make up for the lack of government handout which is now used in lieu of a down payment. While it is very obvious one can buy much more home at 4.75% versus 5.75% i.e. you can purchase more home for the same payment... the problem is the down payment. Very few first time home buyers (who are now the dominant purchasers) have even 3.5% saved. So they have been using the tax credit as their down payment. Many states encourage that - even though that was not the intent. You were supposed to receive the credit on your tax return but since that did not do the trick they've found ways to make it a front end gimmick. So once you take away that $8000 gift, you are left with a pool of buyers who have not saved even 3.5% on their own and hence even 2% mortgage rates cannot get them into the house.
As an aside do you know that California has a $10,000 tax credit ON TOP of the $8000 federal tax credit? $18K to keep manipulating the price for homes, rather than allowing a market clearing price. Yes folks...that's the state with the $19 billion deficit. Somehow they can afford to transfer $10K from the taxpayer to potential buyers, deficit be damned.
- Real estate agents report a decline in foot traffic, meaning sales could worsen in the coming months. The urgency just isn't there, said Pat Lashinksky, CEO of ZipRealty Inc., which has agents in 22 states.
- Floyd Scott, broker-owner of Century 21 Arizona-Foothills in Phoenix, said his office had about 25 percent fewer signed contracts to buy homes in May than it did a month earlier. The tax credit stopped and boy, I'll tell you, it was like, 'Wait a minute. Is the phone still working?' Scott said.
- The report is a worrisome sign for what will occur in July and thereafter when the effect of the tax credit is behind us, said Joshua Shapiro, chief U.S. economist at MFR Inc., an economic consulting firm in New York.
p.s. don't worry, despite record low levels of construction of homes, the BLS will find tens of thousands of new construction jobs in the birth death portion of the monthly employment report. ;) More good work from your team of propaganda.