As expected, data on New Home Sales for the first month of 2009 was downbeat. Indeed, sales reached their lowest level ever recorded since the start of data gathering in 1963. Adding gasoline to the fire, months of supply is now at a record 13.3. There is no question about it-- this data is very, very weak. The incredibly high level of supply is going to keep house price decline rates severely elevated for the forseeable future.
So, am I forced to abandon my view regarding the stock market bottoming process? Not at all, and this is why:
Compared to employment statistics, data on New Home Sales is a leading indicator. New Home Sales always bottom before the economy reaches its trough, with a mean lead time of around 4 months, give or take a few. The stock market usually bottoms 3.5 months before or after New Home Sales bottom. I believe we may have hit the absoulte bottom for New Home Sales in January and, if that were to prove wrong, we will, at the latest, by summer.