Tuesday, February 28, 2006

New Home Sales Data....Weak but ....

Sales of New Homes Decline, Inventory a Record
So the headline number clearly was attention grabbing and much was made of the weak housing data last week.

"New-home sales fell for the fourth time in six months during January, while inventories climbed to another record."

Two things to remember -

1) Inventory is the real story here - new home sales are a fraction of the total real estate market, but inventory build up is going to start pinching the builders.

Couple this with the weak outlook put forth by Toll Brothers (cut their est. delivers 3 times in 3 months) and you can see that the new McMansion era is slowing pretty dramatically.

2) Weather was a huge plus to the industry in 2006. New housing starts soared due to the weather, but inventory is building because buyers are taking a more wait and see attitude.

I'm trying not to be a "bubble bursting" blog, but the canaries are singing. Twenty-five years ago a real estate bubble bursting meant a few part-time realtors lost their jobs. Today, up to half of the new jobs created in the past year were related to real estate and the reach of the real estate boom touches every part of our economy.

I could walk through a scenario by which housing prices fall leading to dramatically lower Federal tax receipts in 2007 and 2008, which severely curtails all Federal spending and then our little "expansion" at Ft. Drum gets postponed until 2014. Right now I'd call that a 5-10% probability, but that's up from about a 2% chance a year ago.

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