Wednesday, December 24, 2008
Yesterday’s reports on new home sales and existing home sales were dismal (please see CR for the new home report and the existing home report), where new home sales dropped to 407,000 and existing home sales dropped to 4.49 million (8.6% drop). But the inventory numbers (supply) went under-reported; the only glimmer of hope across the two dreary reports is that the number of new homes for sale is falling back to trend.
The chart illustrates the reported inventory of new homes for sale and existing homes for sale through November 2008. The existing inventory is clearly troubling, and since it is roughly 10 times bigger than that of new homes, it is understandable why Joshua Shapiro of MFR, Inc. is concerned:
The inventory of existing home sales rose in November, and even worse, it remains elevated at peak levels. Rock bottom pricing is not driving sales quickly enough. The current trend in mortgage rates (downward) should instigate some positive demand from potential homebuyers!
On the other hand, the inventory of new homes for sale continues to move in the right direction – down! The number of new homes for sale, 374,000, are reverting back to their sample monthly average (1978-2008) of 350,000, rather than stabilizing at a peak as is the existing inventory. New construction at its slowest pace since 1959 (the beginning of the series) – November housing starts fell 18.9% over the month to 625,000 – and new home sales are dragging the inventory down.
Inventory of existing home sales is clearly troubling, especially if there are sellers waiting in the shadows to put their homes on the market when housing prices rise slightly (CR calls this shadow inventory). But the number of new homes for sale is clearly a step in the right direction.