My New Blog

Weekly Market Updates Wednesday, February 03, 2010

Can we hit the reset button? We are being factitious, of course, but 2010 has not exactly gotten off to a rousing start. Last week's data releases only added to the perception that we are stumbling into the new year.
After three months of increases, sales of existing homes fell 16.7% to a seasonally adjusted annual rate of 5.45 million in December. Not only did the decrease in sales surprise most analysts, it was the biggest monthly decrease on records that date to back 1968, according to the NAR.
The subsequent release on new-home sales offered little solace. Sales fell 7.6% in December to a seasonally adjusted annual rate of 342,000, meaning the annual sales pace dropped to levels last seen in the first half of 2009 – an epoch most of us would like to relegate permanently to the past.
However, it might not be as bad as all that. Weather was a significant factor in the sales decline. National Oceanic and Atmospheric Administration data showed that December temperatures were three degrees below normal and that it was the 11th-wettest December on record. Bad weather, it is believed, drove many potential buyers to the sidelines.
Some market commentators fingered the first-time homebuyer’s tax credit as well, noting that it caused a surge in sales in mid-2009, but left the market shaky by year's end. They have a point. As we saw with the cash-for-clunkers program, federal tax credits tend to pull demand into the incentive period without increasing aggregate demand. Credits might be successful in stanching a downward spiral but they often fail to create sustained and growing demand.
The good news is that whether demand is growing or not, prices are stabilizing. In the existing home market, median home prices rose 1.5% to $178,300 in December, while inventories fell more than 6%.
In the new-home market, the median sales price rose 5.2% to $221,300 in December, posting the biggest gain in seven months. Moreover, the news on inventories suggests the increase will likely stick. There were an estimated 231,000 new homes for sale at the end of December, down from 235,000 in November, leaving supply at levels last seen in 1971.