Sales of new homes in January were the lowest they’ve been since they started keeping track of them more than forty years ago:
The Commerce Department said on Wednesday sales dropped 11.2 percent to a 309,000 unit annual rate, the lowest level since records started in 1963, from 348,000 units in December.
It was the third straight monthly drop in new home sales and the largest percentage decline in a year. Analysts, who had expected a 360,000 unit pace, said bad weather was partly to blame and warned of more of the same for February.
“There is no doubt that January and February are going to be messy months for housing, given the severe weather conditions, but that does not take away from the fact that the housing sector has taken another big step back, even with government aid,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
A separate report from the Mortgage Bankers Association showed mortgage applications fell for a third straight week, with demand for home purchase loans sinking to the lowest since 1997, hampered by inclement weather.
U.S. stocks shrugged off the weak housing data, advancing after Federal Reserve Chairman Ben Bernanke reaffirmed the central bank’s commitment to keep interest rates low for an extended period. U.S. government debt prices rose, while the dollar fell against the yen and the euro.
Yesterday I was chatting with one of my clients, a finance guy, and we agreed that the next shoe to drop may well be foreclosures in commercial properties, something sure to affect small banks quite seriously. Lo! and behold Fed Chairman Ben Bernanke hinted at something of the sort in his remarks to Congress.
Be sure to check out the graph in this post at The Atlantic, illustrating the steady decline in purchases of new homes since August. My guess is that it’s part and parcel of the large number of foreclosures. Why buy a new house when old ones are coming on to the market so quickly? I can only speculate we’ll see more of the above as more ARM’s come due.
I don’t think we can interpret this result and, even more so, the trend as suggesting that the economy will be lead back by home construction as has been the case in recent downturns.
And Obama wants to subsidize home pruchases and is trying to prop up a market where further price adjustments are likely necessary to clear the market. Or to put it differently supply and demand are trying to take us to the bottom of the cycle so we can start to rebuild and start going back in a positive direction, but Obama is trying desperately to keep this from happening.
Bad move in that market forces are very, very hard to stop. Just ask Richard Nixon with his price ceiling policies.
The coming commercial loan default debacle has been well documented; anecdotally, just look around at the number of see through buildings. For the timing, just look at the wave of loan extensions (2005, 2006 and 2007) and add to it the typical loan tenor. 2010, 2011 and 2012 will be ugly. That’s why local banks have been shoring up capital positions.
From a current JP Morgan economic report:
One prominent strand of thinking relates to the small business sector. Economic problems are often viewed as rooted in financial problems that hit crisis proportions in late 2008 and early 2009. Capital markets have since opened up for large, well-known businesses. But credit conditions are still viewed as tight for small and medium-sized businesses that are more dependent on bank loans. Fed officials have emphasized the link between severe problems in nonresidential real estate, growing problem loans held by local and regional banks that account for a large share of financing for nonresidential real estate, and likely further tightening of credit to small business customers of these local and regional banks.
Dave’s commentary motivated me to get off my lazy keester and review some data I haven’t looked at in quite awhile. It sobers one. From the St Louis Fed:
Since the start of quantitative easing the adjusted monetary base has increaed by 2.1 x, in round numbers 1000 billion. And yet inspection of M2 shows it is going sideways. No multiplier; in fact, the St Louis Fed has it parked in negative territory, down from 1.6 when this started. And when one looks at bank reserves……yep, an increase of about 1000 billion. No loans. Why, you’d almost think they were saving for a rainy day.
And who wouldn’t? With commercial real estate writedowns estimated at $400B, and with forclosures rising and several hundred B in private RE loans yet to be written off.
Its not pretty out there. No green shoots indeed.
PS – That is, with future commercial RE laons…..