As the saying goes, never try to catch a falling knife. And what made me think of that? This: New single-family home sales declined 3.9 percent in February to an annual rate of 848,000, according to new Commerce Department data. That's the lowest level in almost seven years and much weaker than the 990,000 rate expected by the consensus. Plus, it's the absolute reverse of the 3.9 percent rise in existing home sales. Even worse, sales were revised lower for November, December, and January. Here are four Wall Street takes on the news, none of them particularly cheery:
"The decline in new-home sales counters the healthy pickup in existing home sales in February. However, new-home sales tend to lead existing sales by one to two months since new-home sales are counted when the contract is signed while existing are counted when the contract is closed. We will be closely watching the spring selling season, which begins in March.Lehman Brothers"
"This was not a comforting report ? The weather probably played a role in depressing the numbers ? The problems in the subprime mortgage market started to surface early this year, and by February were making headlines. Even before these headlines, though, banks had started to tighten credit to the residential mortgage market, according to the Fed's latest survey of bank loan officers. It is most likely February's weak new-home sales numbers reflect this credit tightening ? The housing market is weak and, notwithstanding February's strong existing home sales numbers, continues to weaken. Our view is that housing will not turn around until next year. Residential construction, alone, will take about 1 percentage point off GDP growth in 2007.Global Insight"
"Existing home sales, which make up 85 percent of the market and are recorded at the time the contract closes, have risen in each of the past three months, but new home sales are a more important leading indicator for construction activity. Taking new and existing home sales together does point to some stabilization in demand, but it will take several more months of data on new-home sales to be sure.MKM Partners"
"In terms of new-home sales, this is what the bottom looks like. In general, we expect new-home sales to strengthen from here. However, given the inventory overhang, residential construction will continue to subtract from real GDP growth for the remainder of 2007 and, likely, much of 2008. Given the market focus on the obvious negative information in today's report, it is worthwhile to note some positive news. First, using 12-month moving averages, median prices for existing homes appear to have leveled off since mid-2006 (not dropped significantly) while average prices have continued to trend upward. Second, if you add new home sales to existing home sales for the following month, commitments to purchase homes rose three months in a row through January.First Trust Advisors"
Now despite the rough housing news, most of the money managers I chat with are still far more concerned about rising protectionism and economic nationalism than any other single long-term economic threat. It's just about the first question I ask in every interview. I chatted this morning with Mark Coffelt, chief investment adviser at Empiric Fund who also runs the Empiric Core Equity fund. He has a good chunk of the fund's $80 million in assets devoted to overseas stocks. (And for the record, he thinks the housing downturn still has a ways to go.) While concerned that a slowdown in global trade would also slow global growth, Coffelt worries that such a retreat would mean higher inflation down the road since the increased competition among global corporations forces them to become as lean and efficient as possible, meaning lower cost goods for consumers.
Correction: A sharp-eyed reader of Donald Luskin's The Conspiracy to Keep You Poor and Stupid economics blog notes a quartet of missing decimal points in my recent story "President Bush's Tax Cut Suicide." In the offending paragraph, I noted that President Clinton signed a capital gains tax cut in 1997. In the eight full quarters before it took effect, the economy grew by $563 billion or 7.1 percentnot 70 percent as I originally wrote. Likewise, in the eight full quarters after it took effect, the economy grew by $727 billion, or 8.4 percent, not 84 percent. And in the eight full quarters before the 2003 capital gains tax cut took effect, the economy grew by $251 billion or 2.5 percent, not 25 percent. In the eight full quarters after it took effect, the economy grew by $789 billion or 7.8 percent, not 78 percent.