24 June 2010

King Canute And The Collapse In Home Sales

Try as they might, the Obama Administration cannot alter economic reality. The housing market has yet to reach bottom. We need to stop wringing our hands about it, embrace the horror, and take steps to allow the bottom to be reached. It is the only sound way to get out of the mess we are in, and to provide for future economic growth.

But the political class is either in a state of denial, or believes that can alter reality by publishing a new rule in the Federal Register. But what else to you expect from a class of people that have spent their entire lives in politics?

Perhaps they need to read the story of King Canute.

So what was accomplished by the tax credit for buying a home? Well, money was spent. Which I guess is an end in itself in Washington. But all that got us was some time for which we paid dear. Home purchases were not increased -- they were simply moved forward. That's all. People who were going to buy anyway moved their purchases forward a few months.

New-home sales plunge 33 pct with tax credits gone

Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

The credits expired April 30. That's when a new-home buyer would have had to sign a contract to qualify.

"We fear that the appetite to buy a home has disappeared alongside the tax credit," Paul Dales, U.S. economist with Capital Economics," wrote in a note. "After all, unemployment remains high, job security is low and credit conditions are tight."

New-home sales in May fell from April to a seasonally adjusted annual sales pace of 300,000, the government said Wednesday. That was the slowest sales pace on records dating back to 1963. And it's the largest monthly drop on record.

Sales have now sunk 78 percent from their peak in July 2005.

Analysts were startled by the depth of the sales drop.

Who are these "analysts" that are always startled? Boy, do they need to find a new line of work, because they suck at their jobs if they didn't see this one coming.

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