December Home Sales Plunge

"Cash for clunkers" house version. What else would you expect?

According to the National Association of Realtors, December sales of existing homes dropped by 16.7%, the largest monthly drop in more than 40 years.

December home sales down nearly 17 percent (1/25/2010 AP via Yahoo Finance)

"WASHINGTON (AP) -- Sales of previously occupied homes took the largest monthly drop in more than 40 years last month, sinking more dramatically than expected after lawmakers gave buyers additional time to use a tax credit.

"The report reflects a sharp drop in demand after buyers stopped scrambling to qualify for a tax credit of up to $8,000 for first-time homeowners. It had been due to expire on Nov. 30. But Congress extended the deadline until April 30 and expanded it with a new $6,500 credit for existing homeowners who move.

"The report "places a large question mark over whether the recovery can be sustained when the extended tax credit expires," wrote Paul Dales, U.S. economist with Capital Economics. "

Really? You don't say... Who could have known?

But the article continues, and concludes with a positive declaration that the worst is over:

"Despite fears that home prices are starting to fall again, some analysts still believe the worst is over.

""We do not believe it is fair to consider this a double dip in the housing market," Michelle Meyer, an economist with Barclays Capital, wrote last week. "The recovery is still under way, but hitting some bumps in the road.""

All that "cash for clunkers" program did was to pull the demand forward (see the chart). The auto sales plunged over 30% in September 2009 when the program ended. Many people had predicted that the tax credit for the first-time buyers would simply pull the demand forward. And it did, plus more: it put more people into the large debt (mortgage debt to buy the house), much larger than the auto loan under the cash for clunkers program.

There will be more struggling homeowners that the government gets to save.

There's a name for this kind of behavior - inflicting pain and suffering on others so that you can save them. It is called "Munchhausen Syndrome by proxy".

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