Home Sales Down Enough?

Sales of newly built homes seem to have leveled off after their steep decline earlier in the year.

However, I’m not convinced that the weakness is over.  Look at the number of new homes on the market:

We’re making only very slow progress toward working off the excess supply of new homes on the market.  (Note that the chart above excludes new homes for sale in which construction has not yet started.)  We’ve got about 466,000 new homes on the market.  We’re working down this inventory by about 5,000 homes per month, net of new construction.  Let’s say that 350,000 is a "high normal" level of inventory.  Then it will only take 23 months to work off this excess inventory.  In other words, don’t expect a turnaround in 2007.

Business Strategy Implications: The housing sector will not turn around in 2007; if you’re in the supply chain, stay hunkered down until further notice. 

Other Blogs Posting on This Topic: Calculated Risk notes that sales which have been canceled are not added back into the supply of new homes for sale, which means the story is even worse than I described.  Paper Money reminds us that the price statistics in the report (which I don’t pay much attention do) do not include special incentives offered by homebuilders, so reality is worse than the price statistics show. Bonddad was surprised by the upward revision of previous months’ data (me too.