Record low New Home Sales in January

You may have heard that the latest report on New Home Sales in the US shows that a record low amount of new homes were sold in January.  Our own databases at ITR confirm this fact and we have data on new home sales stretching back 47 years. 

For sure, a record low number of new homes sold in the US is not a good thing for the economy.  However, I am not too worried about this record low for a few reasons. One principle reason is that January is traditionally a slow month for home sales, so the relative decline compared to previous months is nothing new.

Another reason is the homebuyer’s tax credit.  We saw the first time homebuyers tax credit increase sales in November and October when buyers where expecting the tax credits to expire.  Once Congress extended the tax credits, sales in December dropped.  January’s decline in New Home Sales is just an extension of the distortion that a large subsidy plays on a market.  I bet the closer we get to April, the higher home sales will go again as buyers rush to get the credit that is due to expire.