Housing Double Dip?

Well, yes. Case-Shiller data confirmed this for me in January. We’ve been saying that’s where things were headed since the expiration of the home buyer’s tax credit last year. And even last winter we saw a seasonal dip in prices that got us negative year-on-year numbers. Eventually, this was negated by the effects of the tax credit. But the trend has been down since.

Now, new home sales fell to yet another record low. What is interesting about the most recent data is that:

Despite the fall, the median price of new homes still remains some 30% more expensive than the median price of existing homes.

Normally the difference is only 15%, but since the housing market collapse, the margin has increased as the price of existing home sales has sunk under the weight of millions of foreclosed houses auctioned off cheaply by mortgage lenders.

This paints an especially bleak picture for housing over the near-term. You have a record low number of new homes sold. Yet, they are outpacing existing homes by an unusually large 30% in price because of the glut of existing homes on the market. To me, this means the housing, homebuilding, and mortgage sectors will be a drag on GDP growth for the foreseeable future.

The question is about the knock-on effects in foreclosures, consumer spending, consumer confidence and the real economy.

Below is a CNBC video with insights on this issue from CNBC’s Diana Olick and Jack McCabe of McCabe Research and Consulting.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.