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Home Sales All Around Disappoint

January 27th, 2010 Michael McDonough

New Homes sales plummeted to a pace of 342K units in December, falling 7.6% from a revised 370K in November (originally 355K). The current Bloomberg consensus forecast was for a pace of 368K. The supply of new homes climbed during the month to 8.1 months versus 7.6 in November. The median new home price rose by 5.2% to $221,300.  This comes after a higher than anticipated drop in existing home sales yesterday. I first mentioned that both these indices contained some downside risks in my Economics Week Ahead.

Both these disappoints were catalyzed by what would have been the expiration of the first time home buyer tax credit, and continued headwinds from the labor and credit markets.  December’s data doesn’t imply the ongoing housing recovery has faltered, but highlights its fragility and the full impact of the government’s tax credit on the sector.  It is generally anticipated that the extension/expansion of the government’s first time home buyer tax credit will draw a new group of buyers into the market over the months ahead; however, if this does not materialize, and mortgage rates rise, credit remains sparse, employment gains are non-existent or subdued, and new foreclosures properties continue to flood the market the recovery could be placed into jeopardy.  Nevertheless, I anticipate that housing will again begin to show signs of a very gradual and volatile recovery over the month’s ahead, but downside risks remain very real.

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