Oh What Havoc These Higher Interest Have Brought

While most of what you will read today in the financial media will be about what new Fed Chairman Bernanke said or didn’t say at his first FOMC meeting, what you will read here are the hard facts on how higher interest rates are putting a real dent into the housing market.

— U.S. new home sales fell 10.5% in February, the biggest drop in almost nine years. In January, new home sales had fallen by 5.3%. Hence, in two months new homes sales are down 15.8%.

— The median price for a new U.S. home fell in February by 1.6% from January–the fourth straight month in a row that the median price of new homes has fallen.

— The inventory of unsold U.S. new homes now sits at 548,000 units.


— It will take 6.3 months to sell the existing supply of unsold, but built new U.S. homes are up sharply from 5.3 months in January.

Higher interest rates have put a real break on the new housing market. And those mortgages holders with variable rate mortgages are feeling the biggest pinch. (Between 25% and 50% of U.S. mortgages could be variable rate).

But what we haven’t seen yet is the damage higher interest rates will have on the resale market. That’s because the new home market usually rises or falls in advance of the resale market. With the U.S. economy so dependent on the housing and construction market, layoffs in this sector (which could start happening soon), will have severe ramifications for the economy.

As I’ve often written, the Fed usually lowers or raises much further than what is needed. We’re witnessing this exact case today.

NEWSFLASH– The percentage of Americans who are delinquent on their home mortgages rose to 4.7% in the last quarter of 2005– the highest level in over two years. In Michigan, Indiana, and Wisconsin, the rate of new foreclosure is at the highest level in over 20 years. Almost 8% of Texans were delinquent on their home loans at the end of December, 2005.