01/26/10 Laguna Beach, California – US stocks bounced a little yesterday, despite the news that home sales tumbled a lot. Sales of existing US homes plunged 17% in December, the biggest decline since record-keeping began in 1968. This disheartening news item shocked economic forecasters, but hardly anyone else.
Most of us non-experts understand that folks without incomes or credit buy very few houses. But for some reason, the experts shun this intuitive logic. Instead, they study their econometric models, tweak their spreadsheets and go public with forecasts that would embarrass a tealeaf.
These seers might not be so blind if they bothered to observe the world around them, rather than their computer monitors. Then again, the “world” that surrounds most Wall Street economists is a place that still practices (slightly less) conspicuous consumption…and therein lies the root of their woefully misguided forecasts.
Out on Main Street, conspicuous consumption has become so inconspicuous that it’s invisible. Out on Main Street, incomes are still dropping and credit is still contracting. This combination never produces an enduring economic recovery. But don’t try telling that to a Wall Street economist. They have their models and their compromised opinions. We non-economists have only our common sense.
But lest your editors be accused of undue cynicism, let us give credit where credit is due.
Adam York, an economist at Wells Fargo Securities LLC in Charlotte who correctly guessed December’s steep drop in home sales, expects “a pickup in existing home sales in the next couple of months. We’re past the bottom,” he predicts, “[But] I don’t think there’s going to be a lot of buyers out there looking for a home outside of the tax-induced effects until they feel more comfortable with the labor market.”
“Past the bottom,” but going nowhere, is a forecast we can live with.
For perspective, the “recovering” housing market has not really recovered at all. For all of 2009, existing home sales rose 4.9% to 5.16 million, the first gain in four years. This is the “past the bottom” part of the story. The “going nowhere” part is that the median sales price dropped 12% from 2008, the biggest annual drop on record.
In other words, the NUMBER of existing homes sold increased slightly in 2009, but the VALUE of all existing homes sold actually DROPPED. This unusual divergence suggests that most sales are occurring at the low end of the housing market, where the government’s $8,000 tax credit provides the greatest relative benefit. Meanwhile, at the mid- and high-end of the market, where $8,000 would represent the cost of renovating a half-bath, sales are still dead in the water.
Net-net, the recovering housing market is not recovering.
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A semantical dance that means little unless you dig through the mumbo jumbo – essentially we are in a deflationary depression. Since a depression is merely a great recession and this one is a doozy. Deflationary because the price of goods seems to be flat or decreasing except for oil and gold.
Stocks go up, but that is certainly because of government intervention via a variety of techniques, including zero interest loans from the FED, the efforts of the plunge protection team, and outright manipulation of economic data.
The population demographics of the U.S. and our precarious nonexistent energy policy along with our bubble economy leave us vulnerable to a succession of economic problems that will preclude digging ourselves out of this hole in the next decade.
Preservation of capital should be our first and foremost goal, accumulating more capital will be difficult and should be approached conservatively – this bear can bite at a moments notice.
Mr And let’s not forget the huge shadow inventory of homes that banks have not released for sale…
Jane, I sort of agree with you that at this time we are in a semi-deflationary depression. Mostly due to the housing bubble bursting.
However, I believe we are running to the end of that cycle. I do not see housing being the culprit on the upcoming inflation, but, we will see our cost of goods start to soar as imports become less affordable and surviving corporations become desperate for profits. I believe the demand will still be there, but the ability to pay for the supplies will wane. End result is a lower standard of living for most here. Luxury goods that were within reach, will be nothing more then a fantasy for most.
Also, there were homes bought at auctions, repairs made and then resold.
The purchase from the foreclosure market and then the resale are counted as 2 sales.
So, if we were to remove the ‘Flipper’, sales are actually much worse.