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Thursday, November 01, 2007

September, 2007 Housing Statistics: The Roundup

Each month we round 'em up here in one place.

The Quick Summary
For months builders have slashed production by more than 20%, and now by 30%. Recent weeks have seen what can only be called fire sale prices. Nevertheless, the national market remains drastically oversupplied for new homes.

Because of this, individual sellers have nearly lost any price advantage over new homes that has existed historically. Even without the credit crisis, it will be a lengthy combination of lower prices, less production, and increased demand before anything approaching equilibrium returns.

**Supply Factors: Once Again, Bloated Inventories Despite Production Cuts**
New home inventories, (PDF): Cash strapped builders, after months of reductions in permits, starts and completions, often in excess of 20%, have finally made a small dent in their bloated inventories.

September, 2007 saw permits at 26% less than last year, while starts and completions registered 31% decreases. The current 8.3 month's supply of new homes however remains 22% above last year.

The builders' outlook is summarized by way of the latest National Association of Home Builders/Wells Fargo Housing Market Index. The HMI, released October 18, "fell two more points to 18 in October, its lowest point since the series began in January of 1985."

Inventories of existing homes (PDF), have risen every month since January of 2007, and now stand at a 10.5 month supply. This is 62% higher than inventories FYE 2006. A market is equilibrium is commonly cited as a 6 month's supply as a market in equilibrium. We are 75% above that level.

**Demand Factors**
Sales of new homes, (PDF), came in 23.3% less than last year. Any market that gives up 23% of its volume is big news, and for builders it has been like this for months. CNN Money takes a closer look, and calls the new home market, "even worse than it appears", because of anticipated statistical corrections and other factors.

Average prices rose slightly, but without recognition of incentives offered by the industry, so the numbers are skewed. Nor does the most recent data reflect builder fire sales, or as The Washington Post called it, "car dealer tactics".

Sales of existing homes (PDF), a whopping 8% less than August 2007, and 22% less than FYE 2006. CNN Money reports these numbers as the lowest annual pace ever, and "the steepest one-month and annual drops on record."

The pending home sales index ...offers little in the way of any quick surge in buying.

Conclusions & Forecasts Anyone?
Drastic cuts in production and selling prices by builders have done little to lure buyers and remove the inventory glut. Individual sellers are hard pressed to compete, so the inventory of existing homes for sale will likely persist longer than for new homes.

The consensus is building with an eye towards early 2009 in the opinion of the mortage bankers and the builders. This isn't the lightning pace of the futures market here, it will take time for lower prices, less production, and elusive buyers to shake this thing out.

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