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New Home Market Getting Closer to Normal

February 9, 2009

By Bill Conerly,
Businomics
, Conerly Consulting

New home sales were down in December, the headlines say, but that misses the good news: we’re continually whittling away at the inventory of new homes:


That horizontal line shows the long-run average.  There’s no reason that a current equilibrium would equal the long run average, especially in an ever-changing economy, but it gives us a decent reference point.  At the rate at which we are working off the excess supply of new houses, we’ll be down to “normal” in just two more months.

However, “normal” inventory is excessive when sales are below normal, as they currently are:

So the new home market will not feel normal for quite some time.
This approach ignores the excess supply of existing homes and rental units.  We’ll get new data on that soon.  My guess: we’ll see a significant drop in vacancy rates for both rental and non-rental housing.  The implication: there will come a day when the housing market looks and feels normal.  Not tomorrow, not March, but someday, probably in early 2010.

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Bill Conerly is principal of Conerly Consulting LLC, chief economist of abcInvesting.com, and was previously Senior Vice President at First Interstate Bank. Bill Conerly writes up-to-date comments on the economy on his blog called “Businomics” and produces a monthly audio magazine available on CD. Conerly is author of “Businomics™: From the Headlines to Your Bottom Line: How to Profit in Any Economic Cycle”, which connects the dots between the economic news and business decisions.

  
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Discuss this article

Bud February 9, 2009

I wouldn’t call right now normal.

LaRayne February 9, 2009

Here’s hoping that the whole economy is back to “normal” by 2010.

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