New home sales dropped again – 3.9% to lowest level in 7 years. Inventories up again to the highest level in 17 years. Go see The Bonddad Blog: More on New Home Sales and New Home Sales Drop 3.9%.
Here’s the thing. Last week lenders tightened requirements for getting a loan. This means that fewer people can get loans now for buying houses. So demand for houses is about to drop — a lot. The drop in sales reflects the month before this tightening so things can only get worse.
We have an increase in supply and a big decrease in demand. That can only — ONLY — mean a drop in housing prices is coming. BUT WAIT, THERE’S MORE!
Remember that we’re also in a subprime mortgage crisis — people who could not afford to buy a house were given loans they could not afford, and now it’s turning out that they can’t afford them and they are losing their houses to foreclosure. (And the lenders are going bankrupt.) But with today’s news about lower sales and higher inventories, this will push even more into foreclosure because they won’t be able to sell their houses before it is too late. And THAT puts even MORE houses on the market.
This could turn into an accelerating downward spiral. This could get really bad – worse than the “S&L Crisis” of the 1980s and early 90s.
Here’s the (next) thing — as I said above, lenders are going bankrupt. If you are lucky enough to have savings instead of debt you should check whether you have money in any “money market” accounts, and whether those accounts are FDIC insured. If they are NOT FDIC insured you can lose some or all of your money.