New home sales were down in December, the headlines say, but that misses the good news: we're continually whittling away at the inventory of new homes:
That horizontal line shows the long-run average. There's no reason that a current equilibrium would equal the long run average, especially in an ever-changing economy, but it gives us a decent reference point. At the rate at which we are working off the excess supply of new houses, we'll be down to "normal" in just two more months.
However, "normal" inventory is excessive when sales are below normal, as they currently are:
This approach ignores the excess supply of existing homes and rental units. We'll get new data on that soon. My guess: we'll see a significant drop in vacancy rates for both rental and non-rental housing. The implication: there will come a day when the housing market looks and feels normal. Not tomorrow, not March, but someday, probably in early 2010.