New Home Sales Continue Dropping Precipitously

New home sales dropped 7.6% in December and the annual figure for 2009 was the worst in more than 40 years. Set aside all the other numbers in the article and focus on these, which include the actual sales for the year:

Only 374,000 homes were sold last year, down 23 percent from a year earlier and the weakest year on records dating back to 1963. December's sales were nearly 9 percent below the same month last year.

Home sales have had a rocky recovery from their four-year slide. December's sales pace was up 4 percent from the bottom in January 2009, but down 75 percent from the peak in July 2005.

The median sales price of $221,300 in December was down nearly 4 percent from $229,600 a year earlier, but up about 5 percent from November's median of $210,300.

It's wishful thinking to see a recovery in home sales when 2009 was the worst since 1963. 2009 was 23% worse than 2008, which was an already bad year for the home building market. The claim that there's been a rocky recovery is nothing but wishful thinking.

The drop in new home sales means that the real estate market isn't building new homes, demand is slack, and that's put pressure on the builders to either make further cuts in price or layoffs. It affects the entire home furnishings industry as well, and slows home improvements too.

And the 2009 figures include the homeowner tax credit attempt to goose sales too.

Sales definitely got shifted to November to take advantage of what was the then expiring new homeowner tax credit. That credit got expanded before the Nov 30 deadline, to include not just new homeowners but current homeowners who meet certain conditions, but it's not creating new demand, even with the credit and low mortgage rates because unemployment is still high and all too many parts of the country see their real estate holdings underwater if they bought into the teeth of the bubble.

Current homeowners aren't willing to take losses, so they're not putting their homes on the market, which increases pressures on foreclosures since many can't afford their payments (even with modifications). The Administration (Obama and Bush) needed to stay out of the way and let the markets adjust on their own. It would have been sharp and painful, but we're seeing a long and drawn out pain instead as real estate prices are still too high in many parts of the country and the attempt to forestall foreclosures is actually artificially keeping the prices above where they should be based on what the markets should bear.

Once prices fall, the demand will pick up both in the preexisting home and new home markets.