Wednesday, March 21, 2012

Existing-Home Sales: Still Depressed

The Lehmann Letter (SM)

This morning the National Association of Realtors announced there were 4.59 million existing homes sold in February, at a seasonally adjusted annual rate, down from an upwardly revised 4.63 million in January:

Once again the chart puts matters in perspective. These are weak numbers that may remain weak for quite some time.

Existing-Home Sales
(Click on chart to enlarge)

(Recessions shaded)

The Realtors' announcement speaks optimistically about consumer buying power, job gains and renewed household formation. But, as this letter has stated on many occasions, households compromised their balance sheets - too much debt, too little liquidity and not enough net worth - during the boom in order to acquire homes. Liquidity and net worth eroded further in the collapse as home-prices fell and households desperately attempted to repay their debts. Household balance sheets remain impaired today despite households' best efforts to retire debt, improve liquidity and boost net worth.

To repeat: Real estate remains ground zero for the economy's problems. Consumers won’t buy homes at a robust pace until households feel confident about their balance sheets. Consumers don't want to take on excessive debt and impair future liquidity with payment obligations. Until these facts change, real estate and residential construction can't improve. And that's enough to slow the economy's forward momentum.

On Friday the Census Bureau will announce February new-home sales. Curb your enthusiasm.

(To be fully informed visit

© 2012 Michael B. Lehmann

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