Yesterday the Census Bureau released their data on new home sales; no doubt you’ve heard the news cycle by now lamenting that new home sales are perhaps the worst since the Census Bureau starting keeping records in this category since 1963. 

2008 is certainly turning out to be the worst new home sales year in a lustrum – shown most ably by the graph from the wizards at Calculated Risk. 

So where’s the good news?

From where we sit crunching the market data that we collect every day, part of the single family mess some / many markets are in today has been influenced to some degree (read to a significant degree) by inventories of homes for sale.  Inventories of new homes for sale nationally peaked in August of this year at 11.4 months, and is much higher in some of the hardest hit markets; today there is a 10.4 months supply of new homes for sale nationally – still an impressive number and far above demand – including consideration of historical demand. 

We understand the pain that builders are experiencing now – however the data (new home construction far exceeding historical demand) clearly suggests that many builders participated in digging their own graves during the boom years.  No wonder home builder surveys are showing a record negative sentiment. 

High inventories in most markets continue to exert downward price pressures and restoration of rational affordability – there will not be local, regional, or national market bottoms until affordability is restored.  Inventories are moving downward, and we agree with those who feel that new home inventories will probably have peaked in August – permitting has fallen off to next to nothing in most of the markets that we study (though there clearly are some exceptions). 

Once seemingly invincible to the supply / demand cycle, builders are re-learning that old lesson once again. 

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