New home sales in January fell by 11.2% to a seasonally-adjusted annualized rate of 309,000, according to the Commerce Department (.pdf). Reuters reports that as the lowest level since the government began keeping records in 1963. Separately, the Mortgage Bankers Association says that mortgage applications declined by a seasonally-adjusted rate of 8.5% last week. These indicators might have people wondering: what housing recovery? But this data should be taken in context.
There's an important factor at play in both of these statistics: the weather. It's has been unusually awful for much of the U.S. throughout 2010. People tend not to buy as many houses when the weather is bad. The MBA report argues this:
"As many East Coast markets were digging out from the blizzard last week, purchase applications fell, another indication that housing demand remains relatively weak," said Michael Fratantoni, MBA's Vice President of Research and Economics.
That makes sense for the MBA data, for sure. But was the weather really that bad for all of January? After all, the lowest level of new home sales since at least 1963 is pretty terrible. This statistic was also seasonally adjusted so it sort of already takes winter weather into account. In fact, the new home sales data has been getting worse rather steadily since August:
So there must be other factors at play. In general, the demand for new homes is very weak. The U.S. is still dealing with a huge supply of existing homes, many of which offer great deals through short sales and foreclosure auctions. Why pay a premium for a new home if you can get a deep discount on an existing one?
But what about the home buyers credit extended by Congress in November? Shouldn't that be helping demand for both new home sales and mortgage applications? Maybe. I've argued that recent data all appears to indicate that the U.S. might be experiencing some home buying fatigue. Congress already brought a great deal of demand forward in 2009 when it originally put the credit in place for first time buyers. Compound that spent demand with the facts that banks have adopted stricter mortgage standards and that many Americans' financial struggles take them out of the equation for purchasing a home. Then, you can quickly see that the credit's extension should have a muted effect.
Still, I think over the next few months, particularly March and April, we'll see a little pickup -- the credit's extension ends on April 30th. The urgency of wanting to capitalize on the credit before it ends, along with better weather, should help. But after April, I would expect demand to decline again to return closer to the levels we're seeing now. That won't necessarily kill a housing rebound, but it should prevent it from being a steep one.