Market Talk

There’s nothing surprising about the May new home sales report. We all knew a bad number was coming. Yet the report still managed to shock when it crossed the tape earlier today.

Without a government subsidy to prop up the housing market, new-home sales in May plunged 32.7% to a record low 300,000, worse than the 20.6% drop to 400,000 that economists had estimated. Sales dropped in all four regions, including a whopping 53% plunge in the West. The steep decline also comes after two months of big increases as buyers earlier rushed to qualify for the tax credit before its expiration.

“Bottom line, we knew there would be a large post tax credit drop in sales but the degree is obviously big,” says Miller Tabak’s Peter Boockvar. Beyond today’s data, he wonders what will happen in the near-term as markets adjust to life without the subsidy. “The distortion of steroid shots into the marketplace has only made long-term planning and thus efficiently allocated capital that much more difficult to coordinate.”

The government, of course, was hoping that the economy would’ve improved by the time the tax credit faded so that increasing employment and income would’ve helped stabilize the housing market, Barbara Kiviat points out at Time’s Curious Capitalist blog.

But “anyone who was surprised this morning that this hasn’t yet happened hasn’t been paying attention,” she says. Now, instead of a tax credit, all the market can rely on is the “fundamental force of affordability.”

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Investors had a lot to digest this morning after a slew of economic data crossed the tape, and another snow storm blanketed New York City.

4Q GDP was revised slightly higher, Chicago ISM (formerly PMI), which measures business activity, rose to highest level since April 2005 and consumer sentiment essentially held steady. But the big kicker was a plunge in existing home sales.

More than a foot of snow (and counting) covering NYC is likely contributing to the apathetic mood toward the market; DJIA has stayed within a roughly 80-point range from high to low so far.

While stocks are quiet, market observers are sifting through the data, and not terribly impressed by what they see. The GDP report suggests several reasons for caution, even as the economy grew at the strongest pace in more than six years, Barbara Kiviat writes at Time’s Curious Capitalist blog. About two-thirds of growth came from changes in inventories, not final sales.

“Demand for final products paints a much less rosy picture,” she says.

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This baby's still available, and the price keeps dropping!

Existing home sales jumped to their highest level in almost two years, prompting the bottom-callers to come out in full force.

Home sales bounced 7.2% to a seasonally adjusted 5.24 million annual rate, exceeding analysts’ estimates of 5 million. Cheaper prices and tax credits contributed to the increase, which is the highest month-over-month percentage jump in more than a decade, according to the National Association of Realtors. The July figure also marks the fourth consecutive monthly increase in existing home sales.

“It does appear that the housing market is bottoming out a bit,” White House spokesman Robert Gibbs says at a daily press briefing.  

“The housing market has decisively turned for the better,” says NAR chief economist Lawrence Yun.

“There is no question that the housing market is showing continued signs of bottoming,” says Miller Tabak equity strategist Peter Boockvar.

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