Friday, March 23, 2012

Housing: Three Strikes and You’re Out

The Lehmann Letter (SM)

Here is today's Census Bureau announcement on February new-home sales:

“Sales of new single-family houses in February 2012 were at a seasonally adjusted annual rate of 313,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.6 percent (±23.9%) below the revised January rate of 318,000, but is 11.4 percent (±17.8%) above the February 2011 estimate of 281,000.”

You can find the release at:

Notice that sales were 11.4% above last year's level. That may be cause for cheer until you look at the chart.

New Home Sales
(Click on chart to enlarge)

(Recessions shaded)

We continue to bump along the bottom.

Analysts have been pointing to housing-activity improvements over the last year and rising stock-market values for homebuilders. But today's announcement illustrates the problem of percentages. Start from a small base and percentage improvements can seem large. Look at the historical trends, as the chart does, and that puts things in perspective.

This week housing starts, existing-home sales and new-home sales were all down. Today's new-home sales announcement was strike number three. Sure, all of these were ahead of where they were last year at this time. But, once again, we have yet to see a powerful upward trend such as the one we've observed for new-vehicle sales.

Financing a new car and financing a new home are entirely different matters. You need a stable income to finance a new car. You need a good balance sheet to finance a new home. There is a world of difference between the two.

(To be fully informed visit

© 2012 Michael B. Lehmann

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