The U.S. Commerce Department announced that new home sales in January fell a much worse-than-expected 12.6% to a a seasonally adjusted annual rate of 284,000 units.
That pushed the supply of homes (based on current sales) from 7.0 months to 7.9 months, while the actual number of homes for sales fell by 1,000 to 188,000, the lowest since late 1967. But it's the large decline in sales over the last five or so years that is masking the big slide in the actual number of home for sales; hence, the 7.9 months supply available is actually a bit on the high side even as the number of houses for sale is the lowest in over 40 years.
Since weather did not appear to play much of a role in existing home sales last month, it seems safe to say that the large drop that greeted the new year is probably not weather related, though we’ll need to review the data in February and March to confirm.
Not surprisingly, the huge drop in sales from the 2005 peak (see first chart) has been matched by a stunning drop in inventory of homes available (see second chart).
Typically, a large reduction in inventory in a manufacturing operation sets the stage for a rebound in production. Housing, however, is different animal for a number of reasons.
And the shadow inventory that exists from late-model homes that are either in foreclosure or near foreclosure is providing stiff competition to builders and is offering skittish buyers that are willing to tiptoe into the market plenty of options.
Low mortgage rates may be helping at the margin, but the incredible amount of uncertainty in the housing market has prevented cheap financing from having much of a favorable impact.
Until we see a decent jump in job creation, coupled with a turnaround in the already-discussed factors that are hindering the market, sales are likely to mope along the bottom.
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