New Housing Market Improving Faster than Expected

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From Bill Conerly, Businomics, Conerly Consulting.

The latest month’s news isn’t stunning, but the recent trend has been better than I expected.  Sales of new homes were, depending on your favorite headline, either up, or lower than expectations.  Actually, the change in home sales was trivial. The good news, however, is that we are working off the excess inventory of new homes much faster than I expected–and I’ve been a big pessimist, so this is really good news.

That horizontal line is at the long-run average, 297,000 homes for sale.  We’re getting down to normal at a rapid pace, and should hit the normal line by June 2009, if the current rate of decline continues.  Previously I had been estimating end of 2009.  So good news.

Caution: new homes is just part of the problem.  There’s also a large inventory of vacant existing homes and apartments, so the overall housing market probably will not turn healthy next year.  But you fill up a bucket by starting with a drop in the bucket.

Data note:  I like to look at unsold homes that are completed or under construction.  The “headline” inventory number includes homes not yet started, which to me is just a developer’s dream.

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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.