The problem is that the bad news outweighs whatever good news there was. The growth is much slower than anyone anticipated, and decelerated sharply in the past month. New orders dropped significantly, and it doesn't look like there's any strength behind the sector - so watch for the annualized rate to drop when the next numbers are released.
Moreover, the data fell short of economists expectations (again). The economists continue missing the weakness in the economy, and I have to suspect that the experts are using wishful thinking in determining their numbers.
Combine that data with the fact that the number of people signing contracts to buy homes dropped to record levels.
The number of buyers who signed contracts to purchase homes tumbled in May, a sign the housing recovery can't survive without government incentives.Punctuating the point, construction spending also fell in May amid a slump in home and commercial building.Memo to the idiots writing the stories and the politicians who listen to this "advice". The reason that the sales dropped is because sales were goosed because of the homeowner tax credits - robbing sales from one period to boost another period. Now that the credit is no longer available, the market shows the true state of affairs - a lack of buyers due to credit tightness, lack of funds, and general uncertainty in the market, sellers who can't sell because they're underwater and therefore have to short sell (a far more complex deal than a standard sale). New home sales have dropped off a cliff, and existing home sales aren't much better.
The National Association of Realtors said Thursday its seasonally adjusted index of sales agreements for previously occupied homes dropped 30 percent in May from April. The index fell to 77.6 from 110.9. May's reading was the lowest dating back to 2001.
Together, it's setting up for a renewed correction in real estate prices in many parts of the country because there is little support for the current levels.
My advice to the Administration and Congress - do no harm. Do not extend the homeowner credit, which only helps people who are already seeking a home and are therefore more likely to shift sales to match the credit terms. Fight the urge to lower interest rates further (which when they rebound helps cause problems for people who can't afford the readjusted mortgage rates in ARMs). Let the market sort this out in an orderly fashion. It's going to be painful, but better that than spending billions and extending the pain out over an even longer period of time to minimal effect.
The economic situation has improved only marginally since the recession started, and the real estate sector continues to act as a drag on the economy at large. That's not surprising given that the real estate sector was one reason for the economic growth in the past decade. With home prices sagging, the amount of money homeowners have to spend on items has declined, and demand for new housing has dropped since there is a glut of housing in certain markets. The glut has to be absorbed in order for the market to truly stabilize and no amount of homeowner tax credits will do that job. It will take a steady increase in buyers and improvement in the credit markets for that to happen.
GM released its sales figures, and they too are mixed. June sales are better than the year-ago figures, but are down from May 2010. What the GM data is missing (and has always been a problem) is that we don't know how much money GM makes on each of those sales. It's always been the auto industry's problem - tallying up sales of vehicles without noting whether it's making money on each of those sales. We just don't have enough information to say whether this data shows GM returning to health or continues to limp along.
Congress has sent to President Obama legislation that would allow potential homeowners the opportunity to get the homeowner tax credit even though they missed the June 30 deadline for closings. It would provide yet another extension for those deals already in the pipeline.
The legislation gives buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the original terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.Mind you that this doesn't actually increase home sales, and that these people would have been buying these homes in any event.
The bill only allows people who already have signed contracts to finish at the later date.
Congress also approved the National Flood Insurance Program, which buyers need to qualify for a mortgage for a home located in a flood zone.
"We're elated," said Ron Phipps of Phipps Realty in Warwick, R.I.
About 180,000 buyers needed the tax credit extension, the National Association of Realtors estimated.