The inventory of new homes on the market is down, but just a little. The down is seen easily in this chart:
The "just a little" is seen more easily by taking a longer view:
The inventory is actually higher than reported, because the Census Bureau takes a house out of inventory once a sales contract is signed. If the sale is cancelled, the house does NOT go back into the Census Bureau’s calculation of inventory, and cancellations are pretty high at many homebuilders. (Thanks to Calculated Risk for reminding us of the cancellation issue.)
(Note: I like to look at new homes for sale that are either completed or under construction. The Census Bureau reports a total new homes for sale figure that includes homes not yet started, which to me is just some developer’s fantasy of what might happen if a buyer walks up.)
When will new housing inventory get back down to normal? Let’s say that the normal range has an upper limit of 350,000 homes. Since the peak inventory in September of last year, the inventory has been dropping by 3,000 homes a month. We get from the current inventory back down to 350,000 by the spring of 2010!
We have excess housing inventory until 2010 unless new construction is cut back even more, or some magical new buyers appear. I think the best chance for homebuilders is mass migration to earth from the planet Zorg. Anything else is pretty speculative.