by Bill McBride on 3/25/2009 02:31:00 PM
Wednesday, March 25, 2009
Earlier today I posted some graphs of new home sales, inventory and months of supply.
A few key points:
This is 4.7 percent (±18.3%) above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.
Click on graph for larger image in new window.
This graph shows the February "rebound".
You have to look closely - this is an eyesight test - and you will see the increase in sales (if you expand the graph).
Not only was this the worst February in the Census Bureau records, but this was the 2nd worst month ever on a seasonally adjusted annual rate basis (only January was worse).
This graph shows existing home sales and new home sales through February.
For a number of years the ratio between new and existing home sales was pretty steady. After activity in the housing market peaked in 2005, the ratio changed. This change was caused by distressed sales - in many areas home builders cannot compete with REO sales, and this has pushed down new home sales while keeping existing home sales activity elevated.
To close the gap, existing home sales need to fall or new home sales increase - or a combination of both. This will probably take several years ...
The following table, from Business Cycle: Temporal Order, shows a simplified typical temporal order for emerging from a recession.
|During Recession||Lags End of Recession||Significantly Lags End of Recession|
|Residential Investment||Investment, Equipment & Software||Investment, non-residential Structures|
There are a number of reasons why housing and personal consumption won't rebound quickly, but they will probably bottom soon. And that means the recession is moving to the lagging areas of the economy. But we know the first signs to watch: Residential Investment (RI) and PCE.
(1) In recent recessions, unemployment significantly lagged the end of the recession. That is very likely this time too.
Posted by Bill McBride on 3/25/2009 02:31:00 PM