A Popular Delusion

U.S. Economy: New-Home Sales Unexpectedly Fall to Record Low

Feb. 24 (Bloomberg) -- Sales of new homes in the U.S. unexpectedly fell in January to the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand.

Purchases declined 11 percent to an annual pace of 309,000, below the lowest forecast in a Bloomberg News survey of economists, figures from the Commerce Department showed today in Washington. The median sales price dropped 2.4 percent from January 2009 and the supply of unsold homes increased.

The report underscores Federal Reserve Chairman Ben S. Bernanke’s comments today that the economy is in a “nascent” recovery still in need of low interest rates. Homebuilders face competition from foreclosed properties that have driven down prices at the same time companies are reluctant to create jobs.

“The foreclosure flow is robbing demand from the new-homes market, and that process seems to be strengthening,” said Julia Coronado, a senior economist at BNP Paribas in New York. “The new-homes market just can’t get off the floor. If new homes suffer, construction suffers and jobs suffer.”

Sales were projected to climb to a 354,000 annual pace from an originally reported 342,000 rate in December, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from 325,000 to 386,000.

Rising Foreclosures

Rising foreclosures are the main threat to a sustained housing recovery. A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to make their house payments or sell, according to a RealtyTrac Inc. forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.

The lack of jobs is another hurdle. Consumer confidence in February fell to its lowest level since April 2009 and a gauge of current conditions declined to the lowest level in 27 years on concerns about the labor market and the economy, the Conference Board reported yesterday.


Why is it so surprising to economists and government officials that new housing demand is down?
We still have record low interest rates that in theory should be boosting demand  for credit.
Yet we see an increasing number of indicators like consumer confidence that show demand for credit will continue to shrink.
The popular delusion amongst interventionist economists, politicians and central planners is that they can guide the economy and its citizens into prosperity.
This has never worked to date in the history of civilization!

We need deflation to kick in and work its wonders to put our economy back on the right path.

We are reminded of a quote from Friedrich Hayek:

"We are ready to accept almost any explanation of our present crisis of our civilization except one:
that the present state of the world may be the result of genuine error on our own part 
and that the pursuit of some of our most cherished ideals as apparently produced results utterly different from those which we expected."