Sales of existing homes tumble

Yesterday the National Association of Realtors released its January data regarding sales of existing home sales.  That is, the sale of used homes.  The number was down 7.2% from December.  This, despite the fact that U.S. government home buying incentives remain in place.

Analysis: Again, this is not a good statistic and is a sign that consumers are not willing to spend additional monies, even on assets.  Earlier this week consumer confidence plunged – that will likely lead to very low growth, if any, in consumer spending.  So consumers are sitting on cash.  I have said since the beginning of the blog a year and a half ago that for there to be permanent change in the foundations of the U.S. economy it would have to shift away from its reliance on debt.  I have also repeatedly highlighted the need for the U.S. consumer to shift to being net savers, instead of net spenders.  Spending more than you earn is not a long-term, economically viable strategy.  Eventually the lenders will say “no” to additional borrowings.  However, in the short-term, and with regard to investing, yesterday’s existing home sales plunge does not bode well.

Yesterday’s data also came in conjunction with news of the lack of lending to consumers taking place around the country.  Banks, still losing money on their poorly underwritten mortgage portfolios, and unable to foist the mortgages on other institutions via Mortgage Backed Securities, are sitting on cash, too.  Cash is the blood of the economy, banks the heart.  If the heart refuses to pump blood then the body, the economy, dies or suffers from disease.  Not good.

As I survey the investment landscape it looks like a great time to be in cash.  The stock market is no bargain and the number of storm clouds gathering looks like a decline in equity values is inevitable.  And after such a decline, that would be the time to buy.

Importance grade: 5

I hope that you are enjoying your weekend!

J