Monday, March 26, 2007

The housing doldrums continue

The bad news of the 3.9% (call it 4%) monthly decline in New Home Sales from January to February was certainly a disappointment today, but we have to be careful not to extrapolate too far from one data point. For one thing, that is significantly better than the 15.8% decline we saw From December to January.

My suspicion is that we could well see another decline for March (in the April report), but sometime in the April or May timeframe (the May or June report) we should begin to see some improvement, if only because average selling prices are likely to decline. Keep in mind that there may be a 1 in 3 chance of seeing some improvement in the April report covering the February to March period.

The real bottom line here is that housing is no longer "the long pole in the tent" for the U.S. economy. The sooner we "get over it" and focus on the overall economy rather than obsessing over a once-hot sector, the better, for all of us. Money flows that were being directed at housing are now flowing elsewhere, including commercial construction.

Here is an interesting tidbit from the report: new home sales in the Northeast fell by 26.8%, sales in the Midwest fell by 20.0%, but sales rose by 24.6% in the West. Sales in the South fell by 7%. The net of all of this is that the growth in the West almost totally eclipsed the declines for the entire rest of the country.

Another tidbit: There was actually a 7.6% rise in the actual number of new homes sold in the January to February period, but that gain turned into a loss due to the seasonal adjustment factor.

A final tidbit: The average selling price actually rose from $310,100 in January to $331,000 in February.

In short, the housing sector will continue to be a source of bad news for a little while longer, but there is no "massive meltdown" lurking just around the corner.

-- Jack Krupansky

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