Weak New Home Sales Report Least of Housing's Problems, Barry Ritholtz Says

Ritholtz, author of The Big Picture blog and Bailout Nation, says too much is being made over the January report for the following reasons:

• -- The new home sales data series is notoriously volatile.
• -- Existing home sales are a much bigger slice of the housing pie, and thus much more important.
• -- Even if the data is seasonally adjusted, January is a typically slow period for home sales and January 2010 brought fierce winter storms in much of the country.

Still, Ritholtz believes about the best you can say about housing is "the pace of deterioration has stabilized," as S&P's David Blitzer put it regarding this week's Case-Shiller report. In addition to "obvious" issues such as high unemployment, still historically high prices and tougher lending standards, he cites the following:

• -- The "shadow inventory" of homes for sale, which Ritholtz believes could be as much as 5 million units, as detailed here.
• -- The government's push to modify mortgages via the HAMP program; as detailed on Ritholtz's blog, this includes a preliminary proposal to "mandate foreclosure abatements and mortgage mods."

Regarding this latter point, Ritholtz notes the majority of modified mortgages eventually end up in foreclosure anyway. The government and mortgage lenders have incentives to delay the inevitable, but there are "virtues in foreclosure," Ritholtz says, noting recent improvements in areas that have been hardest hit. Prices in Las Vegas, for example, rose 0.2% in December, according to Case-Shiller, the first positive print in three years.

Since no segment on foreclosures is complete without a discussion about "strategic defaults", I asked Ritholtz about this highly controversial area: Not surprisingly, Ritholtz has strong opinions on the subject of people "walking away" from mortgages, as you'll see in the accompanying video.

Full disclosure: I edited Ritholtz's book and was paid for my contributions.