News On Home Sales Only Gets Worse

On Wednesday, we learned that new home sales in January hit a historic low, dating back nearly half a century.

As if that wasn't bad enough, things got worse today with the news that existing January home sales also slumped unexpectedly.

The National Association of Realtors reported that existing home sales dropped by 7.2% last month from December levels.

Though year-over-year sales improved by 11.4%, the January slide surprised many analysts, who were expecting a slight increase.

Why anyone would be surprised is a mystery. With U-6 the unemployment rate at 17%, one in six Americans is either unemployed or underemployed. And everyone else is afraid they're going to join those ranks.

The most worrisome element is this; if government tax credits (scheduled to expire on April 30) and artificially suppressed
interest rates aren't boosting home sales, what will?

Is it realistic to expect that Americans – who are desperately trying to reduce or get out of debt – will be inspired to buy a home due a tax credit ranging from $6.500 to $8,000?

The median home price nationally is $164,700 for existing homes, and $203,500 for new homes. This means that the government tax credit ranges from 4%-5% of the sales price. That's hardly motivational, especially for people worried about their employment prospects.

Reports indicate that many existing homes are being bought by investors who plan to rent or flip them, particularly in the case of foreclosed homes. Distressed or foreclosed homes made up 38% of all sales nationally in January.

All of the government intervention may simply be expediting sales that would have occurred anyway, as in the case of the Cash for Clunkers program. And despite that intervention, the government cannot thwart what is a plainly organic and natural reaction to economic trends.

The issues in both housing and unemployment are equally deep and structural. Neither will rebound any time soon. It is very likely that these problems with will linger, remaining with us for years to come.

Apparently, government intervention cannot overcome the will of the markets, or the rational anxieties of millions of Americans.