Okay, so March sales of new homes “rocketed” to the highest gain in nearly 50 years, but do the new home sales numbers indicate a turnaround in housing? Hardly. While I understand everyone wants to hear good news, we also need to be realistic and need to know what’s going on in order to make the best business decisions. Here’s the bottom line on the numbers.
According to the Census Bureau, new home sales increased by 7,000 over March 2009, but the increase can be totally attributed to the housing tax credit; and even though sales showed a dramatic improvement over the previous month, February sales were at a record low. The real news is that the overall rate of new home sales remains at very low levels, with March sales 70% below those of the peak five years ago.
While I’m sure that sales for April will also show significant improvement, we must keep in mind that sales are continuing at depressingly low numbers. And since new homes stimulate the economy by creating construction jobs as well as jobs in numerous other industries, housing is unlikely to make a significant contribution to the economy for several more years.
I’ve inserted a graph from Calculated Risk that shows the ratio of new to existing home sales. As you can see, the general trend has been that new homes average between 15% and 20% of sales of existing homes. Even with the tax credit the current ratio is only about 8%. A true recovery will be indicated when the ratio returns to more normal levels, and that won’t happen until we rid the market of foreclosures, something I don’t expect this year or next.
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Thanks to CalculatedRiskBlog.com for sharing this graph.