Given the horrible news on unemployment claims and durable good orders, reporters can perhaps be forgiven for largely missing the most striking piece of economic data released yesterday. The Census Bureau reported that the median price of new homes fell by 10.0 percent in January from December. This is a truly incredible rate of price decline. While the data is erratic, even if the decline was only half this large, a 5 percent single month decline in house prices is enormous. This suggests that house prices are in a free fall. (I remember all those brilliant economists -- first and foremost Alan Greenspan-- who assured us that house prices aren't volatile like stock prices, and would always decline slowly if they fell at all.) One should be always careful about making too much of a single month's data, but it is worth noting that this is the most current series on housing prices. The new home sales reports prices that are contracted, not sales prices. Since there is typically a 6-8 week period between sales and closing, the series that are based on sales prices are reflecting contracted prices from almost two months earlier.
--Dean Baker
