2010-06-23

Maintain perspective on new home sales

Today's shock headline:New home sales plunge 33 pct with tax credits gone

New home sales fell to an annualized pace of 300,000, the lowest ever since records began in 1963. Obviously, tax credits bring demand forward and people thinking of buying a new home in the March-April-May-June period would have an extremely great incentive to get a deal before the expiration of the tax credit on April 30.

A similar situation occurred in September 2009 as the "Cash-4-Clunkers" plan expired at the end of August:
U.S. September auto sales plunge; GM, Chrysler hit hard

The automakers then went on to enjoy robust sales growth in the ensuing months. Therefore, while I do believe the economy appears to be weakening, this data point is extremely low due to the incentive effects from the tax cut. If it follows the pattern of auto sales, the pickup will be slow in the first couple of months, since the buyers in these next few months had the greatest incentive to jump the gun with a purchase.

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