Housing Market or Stock Market? Which Fell The Most?

Which has fallen harder this week? The stock market or the housing market? The Commerce Department reported that sales of new homes dropped 16.6% last month. That is the sharpest plunge in 13 years. Not surprisingly, housing inventory levels rose to their highest point in three months. This news is coming on the heels of the worst day on Wall Street in 5 years.

Granted, home sales normally go down in the winter. People don’t like trudging around in the cold to look at homes. Many people don’t like to list their homes until spring because families with kids need to time the end of the school year with a potential move. But this cut in numbers is the worst since a 23% drop in January of 1994. Not only are sales down, but the sales price is down as well. Last year the median price of a new home was $244,900. This January it clocked in at $239,800. That’s a 2.1% reduction in price.

It’s a buyers market for sure. The number of homes that builders completed and still had no buyers for rose to 175,000. Considering this number doesn’t include cancellations, the number could be higher. Add to that the drop in the stock market this week and it wouldn’t be shocking to see more cancellations. It doesn’t take an economic genius to realize that too much supply will cause prices to drop even lower.

Federal Reserve Chairman Ben Bernake has stated the worst of the housing slump is over. Yet the numbers don’t support that view. The numbers have continued to be weak. Plus, it’s across the board. Home sales fell in all regions. The only positive number to come out of the Commerce Department was that residential construction was falling. The market can only correct itself by limiting the supply. Supply can only be cut if the builders quit building.