Uncertainty Haunts Housing Sector

More uncertainty hit the housing market today as the Commerce Department’s report showed a 7.6 percent decrease in committed contracts for new, single-family homes last month.

A total of 342K units (seasonally adjusted) were sold in December, down from 370K units (revised) in November, and 8.6 percent below the December 2008 estimate of 374K units.

The South sold the most units (178K) in December, but the Northeast showed the greatest jump in units sold, rising 42.9 percent over November.

New residential home inventory at the end of December stood at 231,000 units compared to 350,000 units at the end of November 2008.

At first glance, the news looks like another blow to hopes for a housing rebound. With so much uncertainty surrounding the latest report from the housing sector, buyers may get spooked and postpone housing purchases, despite juicy tax incentives.

But although sales slumped in the last quarter for new residential homes, shrinking inventory (from 2008 levels) could be very good news for the housing sector in the long term. This measure plus the inching up of home prices (as reported in Case-Shiller and Existing Home Sales) suggests to me that housing inventories and pricing are slowly coming back into balance, supporting those economists who say that the market is stabilizing.

I can’t say the process will be easy; more like giving birth to a cube, with fits and starts into the beginning of next year. But a long, hard slog in the right direction is better than the alternative.

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