As I’m away today, I decided my time this morning would be well spent laying out some disaster hedges and now that I’ve done that we can get on with a very brief look at what’s happening.
Of course the big news yesterday was the horrific drop in new home sales, as noted by the WSJ: “Sales of previously owned homes fell 27.2% from June to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors said Tuesday, the lowest level since the industry group started its tally in 1999.”
The expiration of a home-buyer tax credit in the spring was expected to damp buying, though less severely. Economists said the sales drop—together with a corresponding rise in the inventory of unsold homes—meant another decline in housing prices was on the horizon.
High unemployment and meager wage growth already are driving many Americans’ reluctance to make major purchases, so a return of falling home equity could further depress confidence and consumer spending. “At this point in the recovery, every little bit counts,” said economist Paul Dales of Capital Economics. “A double dip in the housing market and house prices would not be enough to generate another recession. It would certainly help to hold back the recovery.” He expects home prices to fall another 5% after a 30% decline during the recession.
None of this is a particular surprise. Like cash for clunkers, we stimulated and pushe home sales and then we removed the stimulus and are now getting a blowback as all we really accomplished was pushing some of the very limited demand forward. I have been saying for some time, without QE2 and more stimulus, there was no way we were going to break over our 10,700 and 1,120 marks (5% above our mid-range) so let’s not get all shocked that the data is bad now – that’s what happens when you don’t stimulate a lethargic economy.
I really don’t understand investors who have no stomach for government stimulus and want to enforce austerity during a crisis but then act like they are surprised when the economic data comes in low. What did you think was going to happen – cut Unemployment and Food Stamps and Social Security and let the states go bankrupt and lay off as many government workers as possible while cutting back discretionary spending and what? Are magic fairies going to show up and start buying because you were so good…
