Monday, January 25, 2010

Housing update

Much is being made of the unexpectedly large December decline in existing homes sales. But a glance at the top chart should make it clear that the big aberration was the November increase, which was driven by expectations that the homebuyers tax credit was expiring. Even if you assume that sales decline again in January (although the tax credit has been extended), they would still likely be much higher than they were in Jan. '09. As the second chart shows, there has been clear and impressive improvement in the fundamentals of the housing market, with the supply of unsold homes having dropped significantly over the course of the past year.


Brian H said...

Hi Scott -

I know this is material for a different post, but it seems very unnerving to me - especially the gold assets. Is there any way that this is not as big a deal as it seems, say due to comparison with GDP or historic indexes?

Monday January 25, 2010, 4:04 pm


Figures on government spending and debt (last six digits are eliminated).
Total public debt subject to limit Jan. 22 12,245,872
Statutory debt limit 12,394,000
Total public debt outstanding Jan. 22 12,302,465
Operating balance Jan. 22 142,454
Interest fiscal year 2009 383,365
Interest fiscal year 2008 451,154
Deficit fiscal year 2009 1,417,121
Deficit fiscal year 2008 454,798
Receipts fiscal year 2009 2,104,613
Receipts fiscal year 2008 2,523,642
Outlays fiscal year 2009 3,521,734
Outlays fiscal year 2008 2,978,440
Gold assets in September 11,041

alstry said...


From what I hear, there is a lot of shadow inventory out there not being counted and reported inventory may be understated.

Further, when analyzing housing, shouldn't we be looking at sales price per square foot to get a better apples to apples comparison. If sales price per square foot is crashing, should we be optimistic that sales are rising?

Here is a snipit from Orlando outlining rising volume but crashing prices.

Orlando-area existing condominium sales in 2009 were more than triple the sales closed in 2008, the Florida Realtors reported.

Association members sold 5,558 existing condo units last year in the Orlando metropolitan statistical area, compared with just 1,667 units sold in all of 2008. But along with the higher sales, median condo values plummeted 55 percent year-over-year, from $117,700 in 2008 to $52,900 in 2009.

Meanwhile, single-family home resales in the Orlando MSA totaled 23,994 in 2009, up 44 percent from 2008’s 16,659. The median price of an existing single-family home was $144,600 last year, down 28 percent from the $201,500 reported in 2008.

Wouldn't being optimistic about the current situation be like cheering about the market crashing on rising volume?

Scott Grannis said...

Brian: These numbers are certainly disturbing. But they exaggerate things somewhat.

To begin with, the debt you should look at is debt held by the public, which is currently $7.78 trillion, or about 54% of GDP. The $12.3 trillion figure includes debt owed to ourselves, and that doesn't really count. 54% is big, but it's not gargantuan compared to the triple digit size of debt/GDP ratios in Italy and Japan.

Regardless, if current trends continue, our debt/GDP ratio will approach the level at which countries with similar debt burdens have displayed a significant tendency to grow less and less.

The only meaningful comparisons of debt and deficits and interest costs are as a % of GDP. They are all relatively high, but not killers. Yet.

I believe the "gold assets" you refer to probably price govt. gold holdings at something far less than the current $1000/oz. price. Gold holdings aren't that important anyway.

brodero said...

First our deficit spending is a problem that has to be fixed but....Government Interest payments to GDP is today 2.84%...
the all time high was in the 1st qtr 1991 at 5.24%....this number
in December 1999 was 3.74% and in
December 1989 5.00%....

Brian H said...

Thank you Scott and Brodero. I'm learning...