The first-time home buyer's credit was essentially a government-sponsored prop for the housing market. As its effects wear off, the housing market will continue to decline.
Yesterday's new home sales results offers even more confirmation that the government sponsored housing bounce of 2009 was essentially a massive tax payer funded suckers rally.
Induced by a relatively large tax gimmick, artificially (quantitatively eased) low interest rates and a climate of foreclosure mitigation, endless unemployment insurance extensions and other “stimulative” measures, many naive market participants likely concluded that 2009 marked the bottom of the great housing decline.
Yet, the real “organic” market forces are not tricked by such tomfoolery.
New home sales have now broken well below the supposed housing “bottom” of early 2009 and likely lead other important measures such as existing home sales, home prices and the new residential construction measures.
So, while popular media and other interested parties continue to spin a tale of a “stabilizing” housing market their story is beginning to look both inaccurate and self serving.
As we move into the spring market don’t be surprised if the second (and final) expiration of the housing tax credit drives another significant spike in home sales but as we see now the effects are likely to be only temporary.
Malinvestment in a market as large as the residential housing market of the United States likely cannot be fundamentally cleared through government subsidy.
The above chart plotting new home sales against the median months for sale demonstrates very clearly that 2009 was NOT the bottom for new home sales.
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