Richard DeKaser of National City Corp. is one of the best economists on housing issues. When I talked to him today for an online story about foreclosures, he mentioned one very small bright spot in the very dark housing scene. Namely, that the backlog of unsold new homes is shrinking.
Yes, the backlog is shrinking. Here are the numbers, courtesy of the U.S. Census Bureau. In July of 2006, there were 573,000 unsold new homes in the U.S., seasonally adjusted. In July of 2007, there were 40,000 fewer—namely, 533,000. This progress is obscured because inventories are usually stated in terms of how many months’ worth of unsold homes there are at the current sales rate. When the current sales rate falls, as it has, the ratio looks worse. (If you don’t understand this level of math, ask a fourth-grader.)
Another way to look at the backlog is to compare the number of unsold new homes to the total number of households in the U.S. That ratio has been falling, which is good, and is below where it was in the bad old 1970s.
Alas, there is no such progress in the backlog of existing homes. There were 4.6 million existing homes for sale in July 2007, up 19% from July 2006, according to the National Association of Realtors. And on Sept. 5, the Realtors said that the July Pending Home Sales Index—a forward-looking sales indicator—fell sharply.
But DeKaser’s research going back 30 years indicates that housing prices are more sensitive to the new-construction market (where the backlog is falling) than to the existing-home market (where things keep getting worse). That makes a certain amount of sense: Builders have to sell, so they’re more sensitive to current market conditions.
DeKaser sees prices nationally falling only about 4% from their second-quarter 2007 peak to a trough around mid-2008.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.