New Home Sales Down 33%, A New Record

The Commerce Department has released figures that show that new home sales have dropped to a record low — down 33% from April. The drop isn’t unexpected, but it does show to what extent the market was being propped up by the tax credit for new home buyers.

From the NYT:

“That new home sales would decline in May following the expiration of the home buyers credit is not at all surprising,” said Dan Greenhaus, chief economic strategist for Miller Tabak, in a research note. “However, we would be lying if we said the size of the drop was not shocking.”

The 32.3% drop was the largest since the government started keeping records in 1963.

U.S. New Home Sales Drop 33% in May [NYT]


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  1. TuxthePenguin says:

    Cash for Clunkers, only with houses…

  2. peebozi says:

    But, but they say the economy is improving. Who cares, the market will work itself out. :rolleyes:

    • hansolo247 says:

      With extremely limited further intervention, I believe it will.

      Problem is, we have never been in that situation, even under Bush.

      Right now, any claims of recovery need to be looked at with a very skeptical eye. Almost EVERY mortgage (96%+) is being guaranteed by the government, which artificially lowers interest rates and props up prices (lower interest means lower payment means more house is affordable). Let’s not forget that the US government is exposed to a HUGE amount of potential liability…potentially enough to literally break the back of the treasury.

      Also, with the federal funds rate at 0% (don’t kid yourself with the 0-0.25% crap) and the limitless amount of free credit given to all but a few (and in many cases, forced on them), all private investment is basically crowded out.

      We will have a recovery when the government is no longer guaranteeing every mortgage and the federal reserve is able to raise rates to 3-4%. Without those, any recovery is a “fake” recovery. Right now, mortgages are risk free to the lender and the lender is able to borrow for free. It’s easy to write mortgages with those terms! Profit or break-even is now guaranteed explicitly by the US government. Even with depressed prices, we’re still in a housing bubble.

      That’s without even mentioning our debt. I thought I’d never see the day when a US president is pressuring Europe to spend and borrow more money. Well, it’s here.

  3. ChuckECheese says:

    It all goes to show how emotional and irrational home buying and selling is. An $8K tax credit shouldn’t be a main deciding factor whether you buy a house or not. Maybe now home prices will fall more, until they are in line with people’s incomes, which I guess means that the average home should cost somewhere in the neighborhood of $30,000.

    • TuxthePenguin says:

      The problem with the tax credit is that it did not suddenly make people who could not credit worthy suddenly credit worthy. In the long-term, $8k isn’t a huge different in a monthly payment. At 6.5% (much higher than mortgage rates even three months ago) that’s a difference of $50 per month; At 5.5%, its ~$45 per month. That’s not going to sway a lender’s mind as to whether this couple is credit-worthy.

      All it did was given an incentive for those who were credit worthy to buy a house sooner rather than later. So, what this did was pull people who would have been buying houses this summer and have them all accelerate their plans (if possible) to before 4/30.

      • nbs2 says:

        It is, however, a way to increase your cash on hand when it comes time to get to to settlement (even with the help that the seller might give). We had no problem raiding our emergency fund to buy our house. Instead of waiting the extra eight months to save up the additional $8k in cash, we just put the money back in a couple weeks later when we got our tax refund.

        People shouldn’t be buying houses they can’t afford, but I believe that the absurd closing costs are the biggest impediment to buyers that are otherwise very well qualified.

      • hansolo247 says:

        the credit did prop up home prices above true market value, which is the objective of every housing policy pretty much ever created.

        Housing interest deduction? check
        Tax credit? Big check
        Guarantee of loans (now they all are)? check
        Artificially boosting the money supply to spur lending to people who really aren’t qualified (even now) with a guarantee of break-even or profit on said lending? HUUUGGGEE CHECK!!!!

    • Murph1908 says:

      It doesn’t have to be the main deciding factor for it to have a significant influence.

      That’s like saying the $3000 cash back when buying a new car was the main factor.

      You have been considering a new car, or a house. You choose to buy now instead of wait due to the tax or rebate advantage offered.

    • DanRydell says:

      Average home should cost $30,000? How do you figure? A home that will last decades needs to cost less than the median per capita income? That doesn’t make any sense.

      It’s not even really possible in this country, the materials to build a house cost more than that.

      • hansolo247 says:

        A pile of bricks and wood should not cost multiple years of income. Sure, now we have appliances and electricity, but housing is overpriced for many reasons.

        There, I said it.

        50 years ago, people could buy houses with cash if they were even semi-responsible.

        The cost to produce a house doesn’t have to be relevant. The supply and demand situation is still tilted toward supply. Price will reach marginal cost when the supply equals the demand.

        • Puddy Tat says:

          I was watching this last night – Sears had homes 2-3 bedrooms for $2500-4000 all you needed to do was answer a simple question what was your vocation and you got yourself an affordable loan.

      • RickN says:

        >It’s not even really possible in this country, the materials to build a house cost more than that.

        Good point. Now that land is free and companies/subcontractors cannot charge for labor or add a profit margin, houses should be $30k.

  4. AuntieMaim says:

    I wish to God they would stop building new effing homes in our area of town. I know new home construction is really important for jobs, and my husband reminds me that it suggests there’s demand for homes our area, but maybe if they stop cranking cheap-o subdivisions out, we’ll have a chance to sell our “used” home at a decent price in a few years. And also maybe they won’t have to halt building halfway through the development due to decreased demand — we have two abandoned developments near us with partially-completed buildings on them that look like squats. Colorful!

    • zandar says:

      I feel badly about the lost jobs too, but I concur. Contractors and the city council have tight to the point of conflict of interest around here. We have a lot of new development that is either just lying around unused or already falling in disrepair. What passes for a new house today is pretty sad compared to new houses built when ours was (1930). Every corner is cut. No basements in tornado alley? It’s almost criminal. The quality of the wood trim is abysmal; cabinetry is almost always ugly pressboard. Even our old bungalow, which was a cheapie house to begin with, has nice wood trim and real wood cabinets. there is absolutely no attention to detail and hardly any sign of genuine craftsmanship in these new places. The lots, of course, are clearcut; modern residential development knows no other way to build. Frequently it’s on old landfill; you can tell pretty quickly which developments are. The roads and sidewalks begin cracking and tipping up dangerously in no time. I am sickened and amazed by the tactics developers use to save a buck.

      Factor in the fact you might be getting Chinese gypsumboard and I’m not surprised it’s so low. I’m glad it is. Maybe more money will be spend on renovating the multitude of solidly built old buildings that deserve some TLC.

      • AuntieMaim says:

        I totally agree. I grew up in a Victorian that we renovated over many years, and older homes feel a lot more like home to me because of it. We actually live in a fairly new development — my husband bought there before we got together because the Realtor convinced him it would be better to “have more house for the money”. It’s in a well-organized neighborhood and we have decent neighbors, but the house is utterly slap-dash and without good quality materials or any kind of character. We cannot wait until I get a job too (I’m still in grad school) and the market recovers enough that we can get out of there and move someplace smaller with more history.

  5. SkokieGuy says:
  6. SkokieGuy says:
  7. dulcinea47 says:

    The “new” in new home buyers isn’t the same as the “new” in new home sales, though. This just means people aren’t buying new houses. What are the statistics on home sales in general?

    • Bunnies Attack! says:

      I second this request. In our area at least, new homes are still listed at prices higher than the market will bear while older “used” homes fluctuate. Plus, you have millions of homes in established neighborhoods that get bought and sold that aren’t included in this stat…

      Also, just given the way subdivisions spread out, you’d think that all new home sales would decline since the new homes are further and further away from the cities where people work so demand is going to keep dropping.

      • hansolo247 says:

        They won’t drop as the government is letting too many borrow money for free.

        Thus, there is no incentive for builders and the banks that finance them to move property, as they have artificially low cost of carrying inventory.

  8. smo0 says:

    Two basics I was told about owning a home – this is assuming you aren’t racking up other debts…

    1.Always have 20% of the cost of the home down – ZERO EXCEPTIONS.
    2.Make sure your monthly payments do not exceed 1/3 of your monthly income… again NO EXCEPTIONS.

    These are just the pre-req’s I go with…

    • SarcasticDwarf says:

      The only reason to have 20% down is to lower your payment (both through a lower principal as well as a slightly lower interest rate). There are actually a lot of times, such as when the market it risky, that it is a good idea to have as little down as possible.

  9. DanRydell says:

    “it does show to what extent the market was being propped up by the tax credit for new home buyers”

    Does it really though? Many people rushed to get deals done earlier to qualify for the credit, meaning sales shifted to earlier months, but that doesn’t mean those sales wouldn’t have happened without the credit.

    • hansolo247 says:

      Yea, they would.

      Modeling behavior on those of the borders of discrete economic decisions, the credit almost certainly did push non-buyers to decide to be buyers. It lowers the price, increasing the quantity demanded. This fundamentally shifted the supply and demand equilibrium by adjusting price through government action.

      With the shift in supply and demand curves to reflect Real prices from the perspective of each party in the market, it also shifted up Nominal prices. As a side effect, it spurred extra supply in homes due to the increased Nominal prices.

      Now that Real prices have been adjusted back to Nominal prices due to the end of the credit (Ceteris Paribus), we are now faced with a market with excess supply priced at the same Nominal levels as when there was a credit. Thus, the market is at a dis-equilibrium and the only way to reach an equilibrium is lower prices (and possible losses).

      thus, the whole effect of the credit was a bubble market.

  10. jim says:

    government needs to stop interfering with home sales. The market needs to find a solid bottom. It cannot do that with the government creating artificial demand based on discounts. Now that those are gone a lot of uncertainty still remains and people are hesitant. Try increasing interest rates and I think a lot of people on the sides will decide to buy.

    • hansolo247 says:


      When rates rise, prices will fall (higher rate means higher payment and less home is affordable).

      This fall in prices will spur demand.

      One might rebut to this by saying that raising rates is government manipulation, it is. But so is the 0% current rates. By letting the market set the rate, things will reach equilibrium, and that equilibrium is at a lower price point.

      0% Fed lending just encourages hoarding inventory and artificially lowers mortgage rates. This allows buyers to buy more expensive homes, but also means there is no cost to carry a home in inventory (as the opportunity cost would be to sell and lend the proceeds, but there is a limitless supply of money to lend already).

      We are about to hit a catastrophic crisis. Not the one we are already in…a worse one. The current administration does not understand economics (or the Constitution, but that’s another discussion). Not that the previous one did, either.

      Soon, the Treasury will be unable to borrow money. Everything will crash. Many entitlements will stop coming.

      This could be hastened by China. They can sell our debt at any time at a discount. This will break the back of our economy. Shame on our officials for putting our country in this position.

  11. rambo76098 says:

    Columbus OH home sales went UP 15% in May over April.

  12. DashTheHand says:

    Maybe if houses weren’t so retardedly overpriced there would be a better market. A 1 bedroom 1 bath starter home should not be going for 150-200k+. Even the “fixer uppers,” short sales, and foreclosures in this area are still in the 100-125k range (for the 1bed 1 bath).

    My spouse and I would love to own a house, but at these prices, its just not in the cards.