The number of unsold new homes fell by 34,000 in November, the most ever. There are now 372,000 unsold new homes for sale, significantly below the peak of 570,000 in June 2006. The level is approaching normal.
The supply problem is in the existing home market, but the underbuilding of homes relative to population growth will inevitably result in the filling up of those homes, whether through sale or rental -- humans need shelter. I would expect inventories to decline at least 500,000 to 750,000 in 2009 because of the population/underbuilding issue. At least 500,000 will disappear from underbuilding and a further 250,000 (at least) will be sold due to low mortgage rates and incentives from President Obama to spur home buying (4.5% mortgages or tax credits or both).
The math on why this is happening is simple: The construction of new homes has fallen below that of household formation. Housing starts have recently been at about 600,000 annually, which works out to about 400,000 new dwellings each year because many new starts are restarts -- tear-downs and such. Birth statistics and Census Bureau data indicate that household formation will on average run at a pace of about 1.2 million in the current year and immediate years ahead, owing to population growth of about 3.0 million.
This means that home inventories -- new and existing combined -- could fall by 600,000 over the next year, depending on the extent of household formation (it slows during recessions, although it is only a delay in the inevitable -- kids won't live at home with their parents forever and roommates go their separate ways eventually). Shelter is obviously a basic need, which makes the inventory call a bankable top-down theme for 2009.
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Tony Crescenzi Blog Libor Flat; Year-End Pressures 12/23/2008 9:31 AM EST At year's-end, there are pressures related to rollover funding and window dressing.
Tony Crescenzi Blog Corporate Bonds Gain 12/22/2008 2:10 PM EST The improvement was sparked in part by the Fed's zero interest rate policy .
Tony Crescenzi Blog Banks Dump Securities 12/22/2008 12:23 PM EST Can lending be far behind?
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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