Diane Swonk, Chief Economist
Feb. 26, 2010 – 9:40 a.m. CT
Home Sales and Consumer Sentiment Continue to Disappoint
Existing home sales fell by 7.2% in January, after declining more than 16 percent between November and December. The National Association of Realtors tried to put a better spin on the data, arguing that sales were still up at a double-digit pace from a year ago. But, let's face it – a year ago the economy was still falling into the abyss, so this hardly represents a good comparison.
Prices held even with the suppressed levels of December, as distressed sales continue to make up an unusually large share of home sales. Indeed, many realtors were complaining that cash buyers looking for deals are beginning to crowd out first-time buyers.
The level of inventories on the market dropped, but the days supply (a housing statistic that is calculated by dividing the level of inventories by the monthly selling rate) picked up, as the selling rate was so low for the month. Inventories are expected to drop further as we get into March and April, as buyers try to get in under the wire for the extension of the first-time home buyer tax credit, which is now set to expire in April. Moreover, housing construction declined in the fourth quarter, which will take away from the number of new homes for sale, while at least a portion of foreclosed homes on the market will soon be deemed uninhabitable and torn down.
Separately, a survey by the University of Michigan showed that consumer attitudes soured over the month, on concerns about the job market. The decline was not as bad as that reported by the Conference Board earlier in the week, but that provides little consolation, as confidence in the economy remains near 1982 recession levels.
The Bottom Line: The housing market, which took the economy down in the first place, remains extremely weak. Moreover, any recovery we do see may be short-lived, given the timeline on the first-time buyer tax credit.The Fed plans to stop its purchases of mortgage debt in March. If demand remains weak, those shifts won't put much upward pressure on mortgage rates.
Look for a more complete assessment of the housing market next month in my newsletter, Themes on the Economy.
© 2010 Mesirow Financial Holdings, Inc. ("Mesirow Financial"). All rights reserved.
The information in Diane Swonk's Fed Flash is the proprietary and copyrighted material (the "Copyrighted Material") of Mesirow Financial. The Copyrighted Material, or any portion thereof, may not be reproduced, retransmitted or submitted to any media outlet, or posted on any Web site aside from mesirowfinancial.com without the express written consent of Mesirow Financial. This information provided here in is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic or other decisions. The views expressed herein are those of the author and may not necessarily represent the views of Mesirow Financial, its operating businesses or other of its employees. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.
