Beating Broke

Personal Finance from the Broke Perspective

New Home Sales Drop Even Further

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It wasn’t that long ago that we were talking about how far home sales had dropped (a new record low at the time) and the causes behind it.  It was just announced (yesterday or today) that new home sales have “unexpectedly” dropped another 12.4% to a new all time record low.

To be completely honest, I’m not sure why it was so unexpected that the sales would continue to drop.  The economy is still just as bad as it was.  It hasn’t necessarily gotten any worse, but it certainly hasn’t made any great rebounds either.  I still maintain that anyone who was in a financial situation to buy a new house likely did already to take advantage of the tax credits that were in play until the end of April.  On top of that, there’s still talk of more “stimulus” to the housing industry.  So it’s likely that there are some who are holding out for a new tax credit to show up.  Will that happen?  I hope not, but you just never know.  Another factor may be the still falling value of homes.  The further the prices fall, the more likely it is that you’ll end up underwater on it.  If you can’t get out from under that, it’s unlikely that you’ll be able to sell without a large amount to cover the difference.

I will continue to not be surprised by these “unexpected” drops in sales.  How about you?  Are there factors that I’m not taking into account that might rescue the sales figures?  (Wizards and warlocks don’t count.)

New Home Sales Down

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So, are you surprised by that news?  That new home sales dropped like a rock in May?  I can’t say that I am.  I try hard to keep my politics out of this site, but what the heck were they thinking?  If you look at the chart that CNNMoney has posted, you can clearly see that, not only did they drop, but they dropped below where they were before.

And obviously, there is a very nice spike for a while.  Incentives do make a bit of a difference.  And, in all honesty, if we had been in a situation where we felt we could afford a new home, we would have jumped at the opportunity to take advantage of those incentives.  But the spike was just that.  A small percentage of people taking advantage of an incentive that made it very attractive to buy a new house.  What it didn’t do was return home sales to anything like previous numbers.  In fact, it didn’t even get the numbers back to 50% of what they were in 2000!  And now, after the incentives have expired, they dropped 33% to an all-time new low. The last time the numbers were this low was in 1981!

I think everybody has the right to purchase a home.  You shouldn’t be dis-allowed from purchasing a home.  But, you still have to pay for it!  Owning a home is not a right.  The ability to purchase one if you can afford it is.  Years and years of politicians buying votes by pushing lenders to finance houses to people who couldn’t afford them is what caused the housing market (and our economy as a whole) to be in the condition it is in.  And that crashs’ ripples are still being felt throughout the country and the world.  Creating incentives to buying a home just extends that streak.  People see that $8000 and think that they can afford a home that they really can’t because they will get a nice $8000 check to help pay it down.  But, when that money comes around, what are they going to do with it?  Spend it.

And in five years, when those mortgages adjust, we’ll have a nice little mess to figure out again.  Sure, it won’t be anywhere near as bad as the current one, but it’ll be there.  If only we could teach people to be responsible consumers.  To not buy what they cannot afford, and to only spend what they earn or less.  If we could do that, then they wouldn’t need those incentives to buy a home.  They might actually be able to afford it without them.