I am not even sure what to think about this horrific number, sales down 13% y/y; mo’s supply up 41% y/y. At least now we know that the demand destruction — most evident in the resale segment for several quarters — is not due to “lack of supply” or “the weather.” When a housing demand metric is 15% worse than my worse-case estimate, things are really bad out there. In fact, this is just more evidence that for the past two years housing data was buoyed by new-era, Fed-driven investor activity and the underlying, fundamental, end-user housing market is still in a serious depression…Mark Hanson, real estate and mortgage finance consultant.
It’s no secret that I’ve been bearish on the housing market for over a year. The performance of the homebuilder stocks in that time frame vindicates my view: the DJUSHB homebuilder index is down over 10%, with the S&P 500 index up nearly 25% in the same time period. That fact alone should be scaring flippers away from the housing market.
But the big drop in March new home sales surprised even me. Clearly they shocked the housing market expert I quoted at the top. Over the last 13 years, March has been statistically the best month of the year for new home sales from a seasonal standpoint. Not only did March new home sales decline from February, but they were down over 13% from March 2013. Furthermore, months supply of inventory was up 42% year over year. The “weather” and “low inventory” narrative to justify poor economic results is clearly no longer valid (which I stated back in January).
You can read my detailed analysis of the March new home sales here: March New Home Sale Plunge.
Make no mistake, I would rather be writing about an ebullient economy and the prospect for prosperity for everyone. I’d rather be hunting for undervalued investment opportunities. That’s when capital can be allocated productively, it provides value-added for everyone and the risks are commensurate with the potential returns.
The reason I smelled a coming housing collapse is because I noticed in several segments of the economy that the consumer was dying on a vine. The holiday retails sales should have been The Scarlet Letter indicator for everyone. Currently, the average household’s income is now declining every month. The Redbook retail chain sales report has indicated that early April retail sales declined from March. That should never happen. Retail sales always increase at least by the amount of inflation.
The middle class is tapped out and so is our economic system.