It appears the trend is no longer our friend, at least when looking at recent data on new and existing home sales.

New-home sales, in particular, have had a rough go of it, though not as rough as January’s showing, where sales dropped 11.2% to an annual rate of 309,000 units. This is the lowest sales rate going back nearly half a century. The sales drop helped push the national median price down to $203,500, a 5.6% discount from December’s median price of $215,600, while helping to push inventory up to a 9.1-month supply. 

However, the news on new-home sales becomes a little more palatable when placed in a larger context. The fact is that at least a few homebuilders, particularly Toll Brothers, remain upbeat. Citigroup, in a research note, pointed out that homebuilders are forward looking, while the sales data are backward looking. Last year, new-home sales were nearly as sluggish, but they recovered as the year progressed. Many market-watchers believe a similar pattern could emerge in 2010.

Existing-home sales fell 7.2%, the second-largest decline ever, to an annual pace of 5.05 million units. Distressed sales accounted for 38% of homes sold compared with 32% in the prior month. Meanwhile, inventory has crept up to a 7.8-month supply.

The data, when aggregated, suggest the federal homebuyer’s credit is losing its punch. We’re not surprised. Tax credits only temporarily stimulate current demand, they don’t raise aggregate demand. For that to occur, we need a sustained economic recovery with a concurrent sustained recovery in employment.

In respect to the economy, there are signs of improvement. The revised gross domestic product report showed that the economy grew faster than expected in the fourth quarter of 2009, posting a 5.9% annual increase. Now it’s a matter of translating economic growth into employment growth. We’ll get a better sense if that’s occurring with Friday’s employment report.

As for mortgage rates, the market continues to hold record lows. And, yes, we still think this is as low as they will go. The Federal Reserve still plans to end its mortgage-market intervention by March’s end, which means rates will be set by the more volatile, profit-seeking market. So, if anyone is thinking of locking in a rate, we strongly recommend he or she stop thinking and start acting.

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