More Fuel For The Double-Dippers? Maybe.

Those of you who believe that real estate is looking at a double-dip recession -- or believe that the first recession is still with us -- got a little more fuel for your fire yesterday.

The United States Commerce Department announced that new home sales sank almost 33% in May. This is the largest one month drop ever recorded. If that pace continues, the government estimates that the country will build only 300,000 new homes in the coming year. That would be the slowest new home sales rate since 1963. New home sales have now fallen 78% since reaching their peak in July 2005.

The reasons for the drop in new home sales? You probably already know them, but high among the reasons cited are ...

• end of the federal tax credit program;
• high unemployment;
• low job security among those currently employed;
• tight credit conditions.

The backlog of unsold new homes across the country now stands at 213,000 -- about an 8-1/2 month supply given today's sales pace. A healthy level would be about a 6 month supply of unsold new homes. The median sales price for these homes stands at $200,900, down 9.6% from a year ago and down a full 1% from April to May.

Here's something interesting: Before the housing bust in this country, new home sales made up roughly 15% of the housing sales. Today, new home sales only account for about 7%. Clearly, the nation now sells less than half the number of new homes that we did a few years ago.

So, if you're among those real estate bears who think we're looking at a double-dip real estate recession, this data tends to support your opinion.

If you think this is just a continuation of the old recession, this data might lend support to your bearish view.

But if you're bullish like me and think that this drop is what you should expect after having a couple of fairly strong months in sales resulting from the tax credit stimulus, then you may not be quite so pesimistic. I think at any given time, there is a finite number of qualified home buyers. Many of those buyers bought or built property in the late spring to take advantage of the tax credit program. Now, we have to wait for a new crop of buyers to come into the market, get qualified for their mortgages, and start shopping for new and existing homes.

Look at it this way. Suppose you had a shoe store and for a couple of months you had a sale where every pair of shoes was 25% off the regular price. The sale comes to an end. What happens? I'll bet that sales in the following month fall off substantially. Why? Because everybody who needed new shoes bought them during your sale. Now you have to wait for new buyers to enter the shoe market -- and they will eventually.

Sound too simplistic? Well, maybe. But only if you believe economists and real estate pundits who make a living from overly complicting simple market conditions.

At least, that's what I hope is happening. Give the market a little time before you start predicting more doom and gloom for Pete's sake!

Happy Selling!

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