Global Economic Crisis

In the wake of the disastrous existing home sales data for July, reported on in my previous blog comment, the Commerce Department released figures for U.S. new home sales for July. They have declined 12.4% from the prior month. More ominously, these figures, when compared with July 2009, reflect a contraction of nearly one third in new home sales. Remember, July of last year was already experiencing a dismal level of new home purchases.

The July new home sales in the United States came in at the poorest level since 1963, reflecting an annual rate of 276,000 sales. To put this number in context, in 1963 the American population was 190 million versus more than 300 million in 2010.

The combination of record contractions in existing and new home sales in the U.S. is indicative of a housing market that, far from recovering, is on the verge of the next phase of a deep collapse. The earlier collapse stemmed from subprime mortgages that defaulted, crippling the global financial system. The second phase is being driven by high unemployment, with no signs of an early turnaround. In this situation, one must be an obtuse optimist to believe that the banks and  investment houses will be immune from the impact of what is clearly an accelerating collapse in the residential real  estate market in the United States.

The U.S. Census Bureau has released the new home sales figures for May, and to say they were dismal would be an extreme understatement. May is the first month reflecting new home sales since the expiration of the Obama administration’s tax credit for first time home buyers, so a decline was expected by economists. However, what was not expected was the collapse of the new home housing market in the United States, which is what the data just released indicated.

In May new home sales in the U.S.A. declined by 32.7 %, which reflects a seasonally adjusted rate of 300,000 home sale per year, a level not witnessed in America since the 1960s. Add in the also dismal used home sales in the U.S. and there you have Fed Chairman Bernanke’s  “green shoots” of economic recovery from the global economic and financial crisis.

Double dip recession, anybody?