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This column was first published on RealMoney at 10:52 a.m., May 16, 2008. For more commentary on today's action from the RealMoney writers, click here for a free trial.

Housing starts increased to a 1.032 million annual rate in April compared to a 954k annual rate in March, beating forecasts by almost100k units. This can be taken as bad news, given that it will make itmore difficult to eliminate the housing overhang.

The main reason forecasters missed the April figure was a big increase in starts for multi-family homes, which catapulted to a 340k pace compared to 250k in March, reflecting its usual volatility.

Starts for single-family homes fell to a 692k pace from 704k in March, falling to its slowest pace since January 1991. Excepting that month, single-family starts reached their lowest since 1982. This is good news, as it will help to clear the massive overhang of unsold homes by limiting the amount of new homes put into the housing stock.

Additional good news on the inventory front can be found in the figures on the numbers of homes under construction and the numbers of homes completed. Both are finally below the level of housing starts, which means that thepace at which the housing stock is increasing is slowing.

A major dynamic that will shape the housing market's recovery is the fact that housing starts have finally fallen below the level ofhousehold formation, which is running at a pace of about 1.2 million per year. At 1.032 million, the net increase in new dwellings is actually closer to 800k or so, as many starts are actually "re-starts," teardowns and such. The excess amount of unsold homes has already been brought down about 600k from the peak, reducing the excess to about 1.6 million.

A year from now, that figure is likely to fall to about 1.2 million or less, which means that about half of the excess will have been removed.

In the context of the recent surge in housing affordability, a halving of the excess of unsold homes will probably be enough to begin to change the dynamic on home prices, shifting a bit of power back to the seller. That said, it might be 2010 or 2011 before the excess supply of homes is fully removed from the market unless there is a turnaround in demand.

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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, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback;

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