I'm sure I'll have no problem moving this sucker now.
Now we’ll get to the Journal story I wanted to point out to you. We made the point this week that what you are starting to see in the economy, in the stock market, is the fading of government and central bank stimulus. I do believe that’s at least partially responsible for the stock selloff.
More concretely, you’re starting to see it in the housing market, where the sugar-high from the home-buyer tax credit is wearing off. It may leave, to mix metaphors, a nasty hangover. From the Journal’s James Hagerty and Nick Timiraos:
The withdrawal of federal tax credits for home buyers led to a steeper-than-expected plunge in May home sales in much of the U.S., as the housing market struggles to wean itself from government support.
Economists and real estate analysts expected home sales to slow after the tax credit, of as much as $8,000, expired at the end of April. But early data from real estate brokers indicate that the sales decline has been far more substantial than expected, with some markets showing declines of 25% to 30%.
Now, really, ask yourself, why should anybody be surprised by this? Since the tax credit was first hatched, roughly half the home sales have been by first-time buyers (the credit originally was offered to only first-timers, the extension also extended it to other buyers.) Consequently, all the action in the market was for homes priced under $500,000, the ones first-timers could afford (I have that anecdotally from talking to real estate agents, but I believe I could find figures to back it up.)
So is a 25-30% slide in sales post-credit really a surprise? It shouldn’t be. So many buyers were “pulled forward,” as they say, that a big drop-off should be expected right about now. If the NAR didn’t expect a pullback at least this big, they’re just fools.
The trick will be to see how sales shape up after that initial drop-off. If memory serves, the cash-for-clunkers program took auto sales from somewhere under the 10M-range — the seasonally adjusted annual rate (SAAR) — to something like 14M, only to see a drop after the program ended, and ground out currently at about 11.4M.
That is a slight enough gain that you could argue it is probably the level sales would have come up to from the 2009 lows with or without the clunkers deal. It also is a level that puts auto sales back where they were in 1983, despite a significant population growth.
Like John wrote yesterday, all of these little stimulus gimmicks are band-aids. Uncle George, and then Uncle Barry, thought they could throw money at the problem and it would go away. But it’s not that simple. It’s not nearly that simple.