Does a 4.7% increase in new home sales say anything about the economy?

According the article (New home sales in surprise rebound) I found on CNNMoney.com a 4.7% increase is generally a good sign but it’s definitely not enough to say the economy is recovering. The U.S. Census Bureau reported that the median sales were $200,900, down 18% from a year ago. The economist at Moody’s Economy.com also stated that this information is only a months worth of information and that there needs to be at least three months of information to tell if the economy is recovering. It also explained that the Mortgage Bankers Association showed a 30% increase in loan applications last week. The main cause was due to Americans refinancing existing loans. I believe this is a good sign, but my gut feeling tells me that the worst has yet to come. I know this article says there is an increase in sales, but I have yet to hear good news of much of an increase in new home sales around my home town.


Anonymous said...

I think buyers are entering the market because prices are at recent historical lows. The best time to buy is when there is a sale. I think this figure is something to smile about, but there are many other indicators that tell us how the economy is fairing. As we've learned in class, it seems that only time will tell, and we'll only know if we're out of this economic slump once we've been out of it for at least a few months.

anthony said...

I think it says a lot about an economic turnaround given the nature of this recession. This recession started due to falling home prices which led to defaults which led to a wipeout of the financial system. If home prices start to trend back up, it means that the issue at the very core of our problems is improving. The better people feel about the economy, the more they'll spend, thus creating a self-fulfilling prophesy that makes the economy improve.

carson said...

It is definitely a good sign that banks are willing to lend again. But through out this crisis, you could get a loan if you qualified with good credit, regardless of any new banking standards. The problem still lies with the thousands of foreclosed homes and the glut in the market they create. Why are we still building new homes when foreclosed homes still need to be paid for? This is a good sign for the economy, but there is still a long road of improvement ahead.

chase said...

I was talking my father about this very subject and he brought to my attention that the only reason that a 4.7% increase in new home sales is because the government has offered homes for dirt cheap to only people that have $250 million to invest can step in and buy up loans. I'm not sure the exact details like how many houses they would receive for that kind of money. If anyone has any info please do share. If this is the case then yeah of course the new home sales will go up. I don't feel like it says much about the turn around in the economy.

Dr. Tufte said...

I think you're probably right Chase.

And ... this is probably another example of way too much focus on real estate. It's just one part of a very big economy. Just because it is easy to watch and keep track of doesn't make it more important.

Thirdly, a lot of this is focus on prices: home prices and mortgage rates. Prices are neither good or bad from a macroeconomic perspective.

Chase: if that was a real policy, someone like me would've heard of it.