Thursday, June 21, 2012

Home Sales Remain Weak

The Lehmann Letter (SM)

Today's announcement from the National Association of Realtors blames supply constraints for last month's weak sales.


Supply constraints may limit recent sales in some markets, but it is difficult to reconcile the chart with a chronic supply-side problem. If a true, overall supply-side problem really does exist, then new construction should recover quickly.

Let's hope so. If the economic recovery is like a ship trying to get underway, then housing is the anchor that prevents it from doing so.

Take a look at the chart. Home sales over the past five years look like an “L” not a “V.” Past recoveries were V-shaped because homeowners and potential homeowners had the wherewithal to get in the market as soon as interest rates fell. Now homeowners and potential homeowners can't get in the market because their balance sheets are compromised. Lenders want strong balance sheets and strong evidence of credit worthiness.

Existing Home Sales

(Click on chart to enlarge)



(Recessions shaded)

Today's announcement from the National Association of Realtors (NAR) provides little solace: Existing home sales fell from 4.6 million in April to 4.5 million in May.

The NAR’s accompanying announcement said, in part:

Lawrence Yun, NAR chief economist, said inventory shortages in certain areas have been building all year. ‘The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand. The normal seasonal upturn in inventory did not occur this spring,’ he said. ‘Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier.’”

"Supply constraints" may limit recent sales in some markets, but it is difficult to reconcile the chart with a chronic supply-side problem. If a true, overall supply-side problem really does exist, then new construction should recover quickly.

We'll see.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

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