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Home Sales Are Worse Than the Headlines Indicate

Wednesday, 23 Jun 2010 04:09 PM

Earlier today, the U.S. Department of Commerce announced that sales of newly constructed single-family homes fell during May to the lowest level on record even though home prices fell sharply last month.

That announcement follows a report from the National Association of Realtors on Tuesday showing that sales of previously owned homes declined 2.2 percent during May, as compared to the prior month.

Although both of those reports illustrate the weakness in the housing market, they don’t reveal the full extent of that weakness.

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That’s because the sales numbers mentioned in those reports don't take into account the substantial increases in the U.S. population during the past several decades.

For example, the U.S. population has increased by 121.6 million persons (65 percent) since the Department of Commerce began collecting data on sales of new homes during January 1963. Yet, 49 percent fewer homes were sold last month than during January 1963. Hence, on a per capita (per person) basis, last month’s decline in the sales of new homes was much larger than most politicians and Wall Street “analysts” would have you to believe.

Specifically, last month’s sales of new homes (300,000) were 11.2 percent lower than their previous all-time low of 338,000 during September 1981. However, on a per capita basis, last month’s sales of new homes were 33.8 percent lower than their 1981 levels.

In light of the fact that approximately 17 percent of Americans who need a job are currently unable to get a full-time job, I expect sales of both newly constructed and previously owned homes to continue to decline during at least the next few months.

The fact that the household debt of most Americans is currently near historical levels (except for the five-year period from September 2002 to September 2007 when the household net worth of Americans rose sharply) also bodes poorly for the direction of home sales during the months ahead.

That would be a very significant development because a large portion of U.S. jobs are related to the housing market.

Hence, if the housing market continues to weaken, there’s a good chance that an increasing number of Americans will lose their jobs during the coming months.

There’s also a good chance that Americans will continue to rein in their spending, which could lead to a further slowdown in economic growth because approximately consumer spending accounts for approximately 70 percent of the U.S.’s total output of goods and services (gross domestic product or GDP).

In its most-recent announcement on monetary policy, which was issued at around 2:15 pm ET today, the Federal Reserve acknowledged that concern, saying: “Household spending ... remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”

The Fed also said, “Financial conditions have become less supportive of economic growth.”

Because of those concerns, the Federal Reserve decided to keep the range of its target overnight lending rate at 0.00 percent to 0.25 percent.

Note from Moneynews:
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About the Author: David Frazier
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Earlier today, the U.S. Department of Commerce announced that sales of newly constructed single-family homes fell during May to the lowest level on record even though home prices fell sharply last month. That announcement follows a report from the National Association of...
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2010-09-23
Wednesday, 23 Jun 2010 04:09 PM
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