We were somewhat surprised that sales of existing homes fell 5.3% to an annual rate of 4.49 million in January, from 4.74 million in December. Much media lamenting was made of the fact that 45% of homes resold in January were short sales or foreclosures. But real estate is local. According to the NAR, these distressed sales accounted for four in five transactions in Santa Ana, Calif., but only one in five in Chicago. Short shrift was also given to the fact that the number of unsold homes on the market fell almost 3% last month to 3.6 million, the lowest inventory level in two years. A reduction in inventory of homes for sale will eventually result in rising property values a very good thing.
As for new home sales, we weren't the least bit surprised. We knew sales would post lower, and they did, falling 10% to a seasonally adjusted annual rate of 309,000 in January from a revised 344,000 in December. It was the lowest level since the Census Bureau began keeping records in 1963. The decline in new home sales comes as builders continue to scale back construction and work off inventory. They appear to be making headway on the inventory front, given that inventory levels have fallen to 340,000 units, down from 357,000 at the end of December. And, as stated above, a reduction in inventory of homes for sale (whether new or resale) will eventually result in rising property values and thats something we all want.
Looking ahead, economists predict that consumers and businesses may continue cutting back on purchases, which could make the first six months of this year rocky. How do they know that? Many are basing their prognostications on fourth-quarter gross domestic product numbers, which one media outlet noted contracted at a staggering 6.2% pace at the end of 2008. We don't know if the contraction in GDP was staggering, but it's worth remembering that last quarter's numbers have no predictive power for this quarter, much less this year.
We're all familiar with the bromide talk is cheap. Maybe it's not so cheap, if we are talking ourselves into a state of despair. People everywhere are likening the current economic environment to the Great Depression, which followed the October 1929 stock market crash and lasted until the United States entered World War II.
Revisiting the Great Depression might seem a logical consequence of our economic situation, but the constant comparison is contributing to current pessimism because too many of us are latching onto the Great Depression as a model of expectations. This latching on, in turn, is reducing consumers willingness to spend and businesses willingness to expand.
There's no reason to go down that road. Yes, unemployment is approaching 8%. Yes, housing prices have fallen off a cliff in some parts of the country (but in fewer parts then most would expect). Yes, the economy has contracted (operative term being has contracted). But there are many bright spots as well: We have little inflation, a very resilient economy, rising wage rates (it's true), 30-year fixed-rate mortgages at 5%, and unbelievable values in the housing market.
Yes, we can talk ourselves miserable, but why should we do that? This country offers too many positives and too much potential. Besides, isn't life just a little too short to be unnecessarily miserable?