New Home Market Inches Closer to Normal

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:

So the new home market will not feel normal for quite some time.

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.

Comments

[sleepless_o...:]

Thanks, Bill. I agree that "normal" may not be normal for a while. It is unusual for a large deviation from trend line to return to the trend line without overshooting.

Jan 30 09:38 AM

[ain't no fo...:]

Thank you Bill... good perspective. Let's hope you're right that we are at least heading in the right direction.

Jan 31 10:45 AM

[The Hern:]

I agree. Don't be surprised if real estate turns out to be one of the leading sectors in '09 with declining availability of homes coupled with the lowest mortgage rates in decades.

Jan 31 10:59 AM

[know nothing:]

Am I missing something here? Rising unemployment, Bankruptcys at all time highs and growing, largest loss of personal wealth ever, failing currencys around the world, failing banks with toxic assets, consumer spending falling off a cliff. retailers collasping. commercial loan failures still ahead. Well if your going to Dream, you might as well Dream big, I guess you never know which Dream will come true!


I have a property or 2 I'll sell you? Looks like a really affordable time to buy.....

Jan 31 12:09 PM

[Conan the B...:]

The New Homes + under construction graph appears to show that we are nowhere near a bottom given economic conditions.

Meanwhile, New home sales are still contracting. I do not see how they will increase given the same economic situation.

A new trend also bears watching, "empty nesters" are no longer the trend. More and more are returning to the Nest.

Jan 31 12:18 PM

[notsosmart:]

the bklyn bridge is still unsold.just this week it was reported that there is 14.7 mos supply of housing.so with unemployment rising,the banks holding on tight to our money,where is the rainbow?

Jan 31 01:19 PM

[EEB:]

I'm a pessimist about housing. Foreclosures seem to be spreading from the sunbelt states like California, Arizona, Florida, etc. to the rest of the country. In North Carolina, I'm now hearing about acquaintances who are starting to worry about losing homes through foreclosure due to layoffs. If unemployment continues to climb, then I don't see how the housing market gets back to normal anytime soon. Even after unemployment stops climbing it seems like it will stay at an elevated level for some time. People without jobs or very afraid of losing jobs will not be buying homes. What is the normal housing market like for an economy that has stagnated with an elevated level of unemployment?

Jan 31 03:26 PM

[gwinner:]

No job equals no down payment or qualifying for a loan.The effect of the burst of the housing bubble may be played out long before the housing market returns to normal if unemployment continues to soar and the recession lasts long.

In San Diego, I'm still seeing long lines for gas at CostCo to save only a dollar or two on a tank of gas in a well off area. The US consumer is frightened and holding on to every dollar tightly.

Jan 31 05:08 PM

[je:]

2012 and there will be no return to "normal" for years. When real estate hits bottom it is going to lay there. You will hear people saying that they never want anything to do with real estate before this is over.

Andbefore you get the real estate back to normal -you might want to see if we can get the employment stabilized.

Jan 31 05:13 PM

[ubuy2w:]

I noticed the numbers are not population adjusted. Given that the population is now 50% higher than it was in in 1970 which is the start period of the data as presented one can expect that the popadjusted numbers are much more extreme. This simple fact makes medium term optimism re real estate values warrented. The US is adding one new citizen every14 seconds, at some point in time those citizens will need housing cars clothing and food. The bears out there and they are numerous and vociverous claim that we are doomed the mkts are hopelessly frozen and credit is contracting faster than and govt. stimulus program can overcome. What they do not realize that if one bothers to read beyond the negative headlines one finds mkt forces are very rapidly restoring relative price stability in the most devasted mkts. EVERY extremely stressed mkt one cares to look at in the residential mkt one sees a similar pattern increasing sales and dropping inventory. Since it appears the listing to sales ratio trumps any other econometric statistic re future real estate prices I am actively scouring the mkts for bargains in residential RE.

Feb 01 02:11 PM