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Given everything that’s going on in Washington, it’s not surprising that the new home sales number out today would be ugly. Sales in August were down 11% from the month before. But wait, that’s August.

Yes, that was sales activity (contracts signed actually) in August, before the Fannie-Freddie takeover, before Lehman's demise, before AIG's

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[AIG  Loading...      ()   ] takeover and before even a whisper of a $700 billion bailout.

It’s also important to note the difference between the existing home sales number we got yesterday and the new home sales number we got today. The National Association of Realtors, which measures existing home sales, bases its number on closings, not contracts signed, so these are homes that actually changed hands.

The US Commerce Department, which tallies new home sales, bases its figure on contracts signed. Given the enormous percentage of cancellations in new home sales (recently around the 30-40% range for the big public builders) many of these sales will never actually come to fruition. In other words, that nasty sales level is even nastier than it looks.

Last month many of the analysts in the new-home-builder-know were starting to use the word “bottom,” maybe not for housing starts, but for sales. Prices were down and the market was already buying into the builder stocks (the market tends to anticipate the bottom a few months previous). But when I see inventories rise, and that’s months supply, not actual number of homes, which the builders managed to cut by 4 percent, I have to call that bottom into question again.

Now the big builders will say they are looking forward to that $7,500 tax break for new home buyers that came out of this summer’s housing rescue bill, but given what’s going on in the credit markets right now, I wonder how much that’s going to matter.

S&L Rescue Now Looks Easy

Here’s a suggestion: Instead of dumping 700 billion dollars onto Wall Street and watching the bottom feeders shovel it up, why not do some of that, but take one hundred billion of my precious tax dollars and buy up the inventory of new homes (at the median price of $221,900 you could buy 450,653, which is almost exactly the current inventory of new homes for sale). Take those homes and give them, with manageable low-rate FHA loans, to all the folks who lost their homes to foreclosure.

It could make a nice return for the government in the long run and would put jobs back into one of America’s manufacturing sectors, not to mention pump a bit of stock price back into the public builders. It might also stabilize home prices, which in turn would allow folks to keep paying their mortgages, which, oh my goodness, might put a little value back into all those mortgage-backed securities that are bringing down Wall Street to begin with.

Just a thought.

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