 | New home sales drop 16.9% |
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Implications: New home sales fell to the lowest level on record in February. The new home market is facing two major problems. First, there are far too many existing homes on the market, many of which are almost new and – due to foreclosures and short sales – selling at a steep discount to fair value (or even building costs). Second, despite low mortgage rates, credit conditions are very tight, particularly for buyers who don't have very good credit scores and a 20% down-payment. Interestingly, about half of the new homes sold are already completed. By contrast, during the housing boom the vast majority of new homes sold were either still under construction or not even started. In other words, buyers today can easily forego the headache of waiting for their new home to be finished. Buyers who have access to credit or can buy with cash have never been in a better position. We expect new home sales to eventually increase substantially, but it will take several years to fully recover due to the large inventory of existing homes. In other recent housing news, the FHFA index, a measure of prices for homes financed by conforming mortgages, declined 0.3% in January (seasonally-adjusted) and is down 3.9% versus a year ago. Also, the Richmond Fed index, a measure of manufacturing activity in the mid-Atlantic region, came in at a still robust +20 in March versus +25 in February. Manufacturing keeps growing rapidly even as housing continues to languish.
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