Economist's Commentary: April 24, 2008

Quick Take on the Economy: April 24, 2008

By Lawrence Yun, NAR Chief Economist

New home sales fell 8.5 percent in March. Sales are down 37 percent from a year ago and down by close to 60 percent from the peak activity in 2005.
Inventory of homes fell to 468,000 and are down by 14.6 percent from a year ago. But months supply (how many months would it take to exhaust the inventory at the current sales pace) rose to 11 months due to very weak sales activity.
Inventory of new homes have been falling consistently since mid-2006 because builders have sharply cut back production from that time. Lower production also means there will be fewer new homes reaching the market and, hence, fewer recorded home sales.
High interest rates on jumbo loans is hurting high-end home sales. Only 14 percent of homes sold were priced above $400,000 this time, compared to 20 percent share in the past two years.

New orders for durable goods decreased 0.3 percent in March following a 0.9 percent decline in February. New orders for defense goods dropped 19.8 percent, but the more important non-defense orders (which reflect business spending) moved up 1.5 percent.

The number of people filing for unemployment claims fell for the first time. The latest weekly figure of 342,000 is down from 375,000 the week before and well below the 400,000 that would be needed to signal an economic recession.
There were loud calls about recession when the figure reached above 400,000 few weeks back. A sustained figure of over 400,000 has in the past been associated with economic recessions.
The total number receiving unemployment checks fell by 65,000 to 2.93 million, implying people are finding jobs. It is higher than the 2.5 million average in 2007 but well below the 3.5 million mark in the last recession

A low new home sales figure is not bad news in itself. It just reflects proper adjustment of builders cutting back production, which is needed to better help control inventory.
Monitor existing home sales to assess underlying housing demand in the current environment.
The economy is not contracting - at least by today's data. If it is, we are in one of the mildest recessions of all time.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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