New homes sales plummeted in May to a record low.  The Commerce Department started tracking this figure in 1963.  The prior record was established in September of 1981. 






New inventory for sale spiked from 5.8 months to 8.5 months.  This increase is shocking given that the gross number of units on the market has declined from 341,000 in January 2009 to 213,000 in May 2010 (a figure last seen in 1970).  If there were still 341,000 new houses for sale, inventory would have set a record at 13.6 months.

Which will hit zero first?  New homes for sale or new housing units sold?  I am pulling for units sold as I would like to see what infinite inventory does to prices.

Failed Public Policy

The economy's problem continues to be that house prices remain dramatically overvalued relative to the market fundamentals that determine them.  Falling housing prices are the solution and should not be restrained with inappropriate government intervention.  The more quickly prices can return to sustainable levels the better. 

The tax credit and complementary subsidies were an attempt to prop up housing prices. 

For 18 months prices could have been approaching a market equilibrium.  Instead they have been temporarily distorted by Government programs to no productive end.  The overvaluation problem remains.  Excess supply and insufficient, unsubsidized demand clearly indicate that prices need to fall further.

For 18 months the Government has prevented the downturn's resolution by fixing prices above fair market value.  Policy makers have sacrificed an entire generation of first-time homebuyers in trench warfare against falling prices.  Politicians have pursued the bizarre strategy of increasing debt on an overleveraged housing market and economy.  I fail to see how any of their accomplishments may be interpreted as beneficial.