Economy Watch: New Homes Sales Sink to Record Low in 2011

New home sales took an unexpected 2.2 percent dive in December compared with the previous month, coming in at an annualized rate of 307,000 units.

By Dees Stribling, Contributing Editor

New home sales took an unexpected 2.2 percent dive in December compared with the previous month, coming in at an annualized rate of 307,000 units, according to the U.S. Department of Commerce on Thursday. For all of 2011, builders managed to sell 302,000 new homes, the lowest annual total since, well, ever. Or at least since 1963, when Commerce began tracking new home sales.

To put that in some context, homebuilders sold fewer units in 2011 than during the years of the mid-‘60s, when the population of the United States wasn’t quite 200 million (it’s more than 300 million now). More new houses were sold each year during the stagflation of the late 1970s, and each year during the early ’80s, when interest rates were through the roof. Last year’s total was even lower than during 2010, when 323,000 units were sold. Previously, 2010 held the title for slowest new home sales in a year. No more.

The reasons? Mortgage interest rates might be at their lowest level since the invention of Arabic numerals, but it’s still pretty hard to get a mortgage. And besides, why buy new when plenty of not-too-old foreclosed properties are on the market at a smart discount? On the other hand, unemployment is going down, and so it’s possible that 2011 will indeed be the bottom for the new housing market.

Conference Board leading indicators up

The Conference Board’s Leading Economic Index for the United States increased 0.4 percent in December to 94.3 (that warm up-to-the-bubble year of 2004 = 100), following a 0.2 percent increase in November and a 0.6 percent increase in October. According to the organization, the gain was widespread among the leading indicators that make up the index, suggesting economic conditions should improve in early 2012.

On the other hand, the LEI gain in December was held back by negative contributions from the new Leading Credit Index—which indicates weak credit and financial conditions—and from consumer expectations for business and economic conditions. The Coincident Economic Index (CEI) for the U.S. increased 0.3 percent in December to 103.4, and the Lagging Economic Index (LEI) also increased 0.3 percent in December, to 113.4.

“The CEI and other recent data reflect an economy that ended 2011 on a positive note and the LEI provides some reason for cautious optimism in the first half of 2012,” Ken Goldstein, an economist at the Conference Board, noted in a press statement. “Looking ahead, the big question remains whether cooling conditions elsewhere will limit domestic growth or, conversely, growth in the U.S. will lend some economic support to the rest of the globe.”

GDP, Chicago Fed Activity Index also up

The Bureau of Economic Analysis reported on Friday that U.S. GDP rose at an annualized rate of 2.8 percent during the fourth quarter of 2011, compared with 1.8 percent in the third quarter. The increase was due to inventory investment, personal consumption, and even real estate spending, both residential and commercial, but was offset by declining government spending at all levels and increasing imports. The fourth quarter and annual figures are only preliminary, however, with a firmer number released at the end of February.

The Chicago Fed National Activity Index was up as well in December, shifting from -0.46 in November to +0.17 in December. The less volatile three-month moving average (called CFNAI-MA3) increase from -0.19 in November to -0.08 in December, its highest value since March 2011, while 32 waxed negative, so there seems to be some momentum in the economy going into 2012.

Wall Street didn’t much like the housing numbers, and dropped modestly on Thursday. The Dow Jones Industrial Average lost 22.33 points, or 0.36 percent, while the S&P 500 was down 0.57 percent and the Nasdaq declined 0.46 percent.

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