May 31st, 2011 12:12 PM by Nick Rapplean
Studying the data this week, the thing that stuck to my mind like chewing gum to the bottom of a school boy’s desk was this: There are now 175,000 newly-constructed homes on the market. Astonishingly, that’s the lowest number since 1963.
Still, new home sales in April rose by 7.3%. The industry has apparently reached the point where minimal of supply for sale is slightly exceeded by minimal demand. Underwhelmed by this news, Bloomberg’s online service called new homes “arguably the weakest sector of the whole economy.”
Sales of existing homes meantime slipped by 0.8% in April, while market inventory jumped to enough homes for 9.2 months at the current rate of sales. (That was 8.3 months in March.)
Welcome to “the darkest hour before the dawn,” to quote The Economist. It is very difficult to get cheery over the data released this past week. The Pending Home Sales Index, compiled from reports of the newly-signed home purchase contracts over the month, did a swan dive in April, falling 11.6%. Worst-hit was the South, with a 17% decline, but most analysts were quick to note that the South has also been hit hard by tornados and continuing weather problems.
Lawrence Yun, chief economist of the National Association of Realtors? (which computes the Pending Home Sales Index) offered the following soft-spoken reflections: “The pullback in contract signings is disappointing and implies a slower than expected market recovery in upcoming months. The economy hit a soft patch in April from sharply rising oil prices, widespread severe weather with the heaviest precipitation in 20 years, and a sudden rise in unemployment claims.”
Until this month, he has been grumbling the real estate sales are being minimized by overly restrictive lending policies and overly conservative appraisals. While he may be right, the fact remains that we are becalmed at the moment, our economic sails flapping for lack of wind. The weather, weak economy and unemployment are all side issues, not the cause of slow real estate sales.
Of course, it’s not just the real estate sector that is relatively motionless. Last Thursday, we had the first estimate of Gross Domestic Product growth in this year’s first quarter. Though many analysts expected about 2.2%, the report floated 1.8% as the rate of growth, weak even in a recovered economy—but in our stage of trying to regain a reasonable rate of economic growth, this figure is rather pathetic.
The only real silver lining here is the attractiveness of mortgage rates, though far too few are willing (or able) to step up and apply for a loan. It is as if we’re all thirsty and there’s water in plain view—but it’s ocean water, and we’re becalmed.
Taking the position that things are likely to improve feels a bit like wearing a 3-piece suit to one of my stepson’s rock concerts and declaring that a fashion change is on its way…but I do believe these are the hardest days to keep our chins up.
I just wish there were more indication of approaching economic improvement—a little breeze in our sails. At the least, nearly anyone who wants to arrange financing and can qualify in today’s market should do so. Rates won’t be falling more than an occasional basis point further for the time being, and they are reasonably likely to turn quickly when they move in a new direction.