Rising Inventories Bring Falling Home Prices

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Rising Inventory of Unsold Homes Is Likely to Put Pressure on Prices

• Summary: Home inventories rose 4.7% in August, signalling more downward pressure on prices. The biggest increases: 1) Dallas (16%) 2) Seattle (13%). Of 18 areas studied, only two saw a drop in inventory (Boston [-1.5%] and Washington D.C. [-1.6%]). Prices are falling as sellers become more realistic; over 35% of homes' prices have been reduced. Yet buyers, it seems, still await further price drops.
• Comment on related stocks/ETFs: Rising inventory and falling prices begs the question: Who's building the things? One answer: Residential building permits take 12-18 months to get approval. Permits are just now being issued to builders who scurried to submit their applications at the peak of the bubble, when it seemed prices would keep going up. Yet despite an almost endless stream of negative data, homebuilder stocks, after hitting lows 4-6 weeks ago, have stubbornly rebounded (albeit modestly) and stayed above water since (see attached chart). Can low interest rates, and the Fed's apparent halt in rate-hikes, turn the current downturn into a bull-market pullback, or is what we've seen thus far the humble beginnings of a burst bubble that will take the entire stock market down with it? Would you perhaps consider asking Mr. Toll?

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6-month Daily Homebuilders Chart: streetTRACKS SPDR Homebuilders ETF (XHB) vs. Toll Brothers Inc. (TOL) vs. Lennar Corp. (LEN) vs. KB Home (KBH)