We have too many new homes on the market. Take a look. (This chart shows new homes for sale that are either finished or under construction. The Census Bureau also counts houses on which construction has not begun. To me, that’s counting some developer’s hopes and dreams. But the picture is similar by either measure.)
The average number of new houses for sale, including the recent sky-high period, is 295,000. At the recent pace of decline, which has lasted 13 months so far, how long will it take to work off the excess inventory and bring us down to that 295,000 average? The inventory is declining by about 2,500 units per month, and we have 149,000 more decline to go. At the current pace, it will take 59 months to work off the excess inventory. That takes us to the autumn of 2012, five years from now. But there’s good news. The pace of new construction has slackened, and builders are cutting prices more aggressively to move their inventory. Of course, all buyers these days have to be prime credits, not subprimes. And there won’t be any investors involved, at least none who are legally allowed to sign papers with sharp objects. And we still have a glut of existing homes on the market as well as these new houses.
I see little room for optimism about new housing construction. Sorry.