We generally advocate not overanalyzing one-month fluctuations in economic data too much, given the inherent possibility of weird seasonal adjustments, bad weather, etc. Unfortunately, while we don’t suggest hitting the panic button just yet, lousy readings on new and existing home sales suggest it might be time to at least be concerned about the housing market’s future recovery prospects.
New home sales slid to a new all-time low of 309,000 (seasonally adjusted annual rate) during January—also a record. The re-sale market had rebounded more strongly over the course of last year, particularly in the second half of 2009 as buyers snatched up homes at a torrid pace to take advantage of a new homebuyer tax credit. While that credit expired late last year and hurt sales in December, it has since been extended (to April 2010) and expanded to include more buyers. So far it hasn’t jump-started sales much as existing home sales plunged 7.2 percent to start off 2010. What is perhaps most disconcerting about the housing market outlook is that once the tax credit expires again in a few months and the Federal Reserve closes down its agency mortgage-backed securities (MBS) purchase program, which itself has held down mortgage rates, what will generate demand for housing should the labor market remain in its weakened state?