The Crash In New Homes Sales Slows Down A Bit


Yesterday we mentioned that the free fall in prices of existing homes would depress new home sales. It’s really a simple relationship: when existing homes are cheap, people don’t buy pricey new homes.

Now we’ve got the new home sales numbers, and they are predictably horrific. New homes plunged another 10 per cent in January. The annual rate is now 309,000 units, which is the lowest ever recorded.

Economists like to talk about how many months of supply of new homes we have sitting in the market. It’s basically a measure of how long it would take to sell every new home at the current rate. Construction of homes has slowed down, which should mean that we’re reducing how long it would take to sell all the new homes. Unfortunately, the massive slow down means that even though we are finally reducing the inventory of new homes, we’re actually pushing back the calendar date. We now have 13.3 months supply of new homes, the longest supply ever recorded.

It’s too bad they don’t give out medals for setting these kind of records. We broke all the records in December, and now we’ve broken them all again. 

Bright spot on the housing news: the 10 per cent January decline is a slower decline than the 14 per cent we recorded in December. So maybe the crash is slowing down a bit. Remember, we need to slow down our decline before we can stop it or–fingers crossed–someday reverse it.