Paper Economy - A US Real Estate Bubble Blog: New Home Sales: January 2009

Thursday, February 26, 2009

New Home Sales: January 2009

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for January showing continued and eve accelerating deterioration in demand for new residential homes across every tracked region resulting in a startling 48.24% year-over-year decline and a truly horrendous 77.75% peak sales decline nationally.

It’s important to keep in mind that this stunning year-over-year decline is coming on the back of the significant declines seen in 2006, 2007 and 2008 further indicating the enormity of the housing bust and clearly dispelling any notion of a housing bottom having been reached.

Additionally, although inventories of unsold homes have been dropping for well over a year, the sales volume has been declining so significantly that the sales pace now stands at an astonishing 13.3 months of supply.

The following charts show the extent of sales declines seen since 2005 as well as illustrating how the further declines in 2009 are coming on top of the 2006, 2007 and 2008 results (click for larger versions)

Look at the following summary of today’s report:

National

The median sales price for a new home declined 13.47% as compared to January 2008.
New home sales were down 48.24% as compared to January 2008.
The inventory of new homes for sale declined 29.3% as compared to January 2008.
The number of months’ supply of the new homes has increased 35.7% as compared to January 2008 and now stands at 13.3months.

Regional

In the Northeast, new home sales were down 50.9% as compared to January 2008.
In the Midwest, new home sales were down 33.8% as compared to January 2008.
In the South, new home sales were down 45.9% as compared to January 2008.
In the West, new home sales were down 59.9% as compared to January 2008.

Labels: economy crisis, housing bubble, housing crash, new home sales

8 Comments:

Homebuilders are doomed. The USA is overbuilt. There is no shortage of dwellings and little need for more. It needs to shrink to a "cottage industry" - ha ha ha like the pun?.

For that matter the builders of commercial properties are doomed also. The retail situation is even more overbuilt than private dwellings.

By Phil, at 11:33 AM
SATT - im curious which do you think is/ would be a bigger drag on the economy:

(A) all new homebuilding stopped, everyone in the industry was added to the unemployment rolls, housing recovers that much quicker; or

(B) homebuilders continue to overbuild, keeping some of them employed, and further delaying the housing recovery.

Obviously (A) will never happen, but its an interesting mental exercise. If it did happen, would the US economy be better or worse because of it? Any guesses?

By Anonymous, at 4:58 PM
Anon,

On one hand its important to remember that construction jobs (residential and non-residential + specialty trade construction workers) are total currently only 2.87% of the civilian population.

So although there is no doubt tha losing those jobs would depress the economy further... the threat is nowhere near as fundamental as what we are seeing in the professional services industry.

If prof svcs. jobs continue to collapse we are in a world of hurt since those jobs and workers are extremely specialized...

ALSO... your scenario (A) has basically come true... currently new construction permit activity has dropped to an SAAR of 335,000... that's an historic low... the lowest rate in a least 48 years .. especially shocking when you consider that the population has doubled since 1960.

I think the new home market is undergoing a long process of clearing... its still seriously impaired but inventory is steadily dropping (unfortunately sales are dropping faster) and prices are coming down... eventually it will bottom and the business will likely simply remain miserable for years to come... the real trouble is from the used home market.

Prices are still way too high for existing homes... homebuilders are professionals with, at the very least, the incentive to avoid bankruptcy weighing on them.. individual "homeowners" are not only novices... they are generally fools...

That is why the existing home market will continue to tumble...

"homeowners" are not rational participants... they are sheer numbskulls and will go to the mat to keep the asset with the sense of the inflated price... they will go down with the ship ... try to wait it out but eventually fail..

See.. if the stock market continues its trend to an 80% total decline on the S&P 500 households will be cornered.

If they have any home equity at all it will be the only asset they have that has any intrinsic value.

Then then when they try to liquidate that asset (from necessity) it will be the exact wrong time... precisely when sales are fundamentally depressed and the house comps out at extraordinarily low values...

Soon the housing market may simply be completely broken...

I believe there is a lot more potential inventory out there (not just bank owned shadow inventory) being held by households trying to wait out the storm ... if the economy fundamentally withers (like S&P 500 with a value of 500!) they will see the error of their ways.

By SoldAtTheTop, at 8:34 PM
Satt, I've been reading your blog for a while now, but I didn't realize the depth of you pessimism. I'm dismayed that your argument seems plausible, but I very very much hope you're wrong for a change.

Most of us saw this first as a housing bubble, then as a consumer-debt bubble, then as a over-leveraged banking problem. I don't what it'll be next. But if you're right that our service-based economy is brittle and about to break, then 2010 will be worse than 2009, and 2011 will be worse than 2010.

So is anyone else thinking about service workers, positing that they are over-specialized and will find it difficult to adapt to a changing economy? Or is this your original thinking?

By Dagger, at 11:37 PM
Dagger,

I'm proud to say that the majority of my themes come right out of my own noggin!!

I do read a lot but I try very to sow together a new theme based partly on inventive thought (speculation on hunch) and partly from the data and current accounts... so its not quite forecasting because I haven't yet mastered the ability of calling the actual numbers preciously but that's not so much where my interest lies anyhow...

I like to try to envision big picture concepts by looking at how the basic trends in the data are going... that has seemed to be a winning ticket for the last few years.

For example, the professional service sector job shakeout theme came from looking at the continuing claims data series way back a while and realizing that the job shakeout pattern had been getting longer and longer with each passing recession... look at the pattern on my "mid-cycle meltdown" posts... the curve looks to be taking longer to resolve with each recession from 80s to 90s to dot-com... etc.

So my hunch is that that is a function of the specialization of our workforce...

You can pretty much back that hunch up to when you look at the 40s 50s 60s era unemployment rate data... the recessions were more frequent but generally shorter presumably because labor could swap in and out of less sophisticated manual jobs, the more widespread use of "temporary" layoffs, larger union activity.. etc.

Now... consider that at the job peak of Dec 2007 you likely had the largest "professional services" component (as a percentage) of the workforce on history... so a historical high of independent (non unionized, and non temporary layoff worker...) college educated professional service workers... at the same time that manufacturing and goods producing workers are barely 10% of the workforce ... an interesting precedent considering all the other recent distortions.

Now throw in there as dash of skepticism about both the quality of service of the typical US professional service worker (dead wood effect) and the real need (or growing lack of need) for their services... and there you have it!

Also, I could add my own experiences with corp America as well as my sense of what it will take many professionals to come down from their heights.. the psychological effects of being thrown aside and their motivation to retrain... it goes on and on but I think there is enough evidence to suggest that this period will be really difficult.

hmm... so the short answer is no.. I haven't really read anyone else talking my level of gloom about prof services workers... but soon you never know!

P.S. I have a new, more detailed, post coming on my "prime-bomb" theme... its about as bearish as I have ever gotten... I just don't seem to have an off switch!

By SoldAtTheTop, at 7:45 AM
I know of plenty of people who had plans to do some spending on real estate, but now they hold off since they don't know if they have a stable income or not. It is hard to commit when you have uncertainty hanging over your head.

By Bad Economy, at 2:40 PM
Satt,

OK, sounds like a reasonable assessment. I grew up in a blue collar household in a working-class neighborhood. But my adulthood has been white-collar. In general blue-collar folks do tend to be more humble about their work, and think of a job as just a job, while white-collar often self-identify with their job. And I think professionals tend to think their job is essential.

But the fact that job re-assignment seems to be taking longer with lately could be attributed to more household wealth (so people can wait it out) or better unemployment benefits.

I dunno. It all feels sort of grim and murky to me.

By Dagger, at 4:37 PM
Nice mansion good environment.

By double breasted suits, at 7:59 AM