A Closer Look At Housing

Calculated Risk is one of the few economic blogs I still read regularly, largely because CR avoids the partisan garbage and relies almost exclusively on data in its analysis. In addition, their housing charts have become "industry standard" for the blogsphere.

So, let's start with the existing home sales market.


The pace of sales appears to have hit bottom. We're been at/near the 5 million units/year level now for nearly two years (b)-- the same pace we saw in the late 1990s (a).


However, the inventory level is still horribly out of line with the historical norm. In the early 2000s, the level stood at 2 - 2.5 million (a), whereas now we're at 4 million (b). In other words, there is still a ton of supply.


In addition, the pace of sales is still way to slow. The historical norm is between 4-5 months of inventory (a), whereas now we're at the 8 level (b).

Let's move onto the new home market -- by far the smaller of the two.


The sales pace is incredibly low -- it's at/near the lowest level in over 40 years.


Inventory levels are also more in line with the historical average as is



the pace of new home sales

What got me thinking about this market was this article from the Financial Times:

Now the tax credit has run out, that momentum has slowed dramatically. “In the last four weeks I’ve seen very weak traffic and weaker activity,” says Mr Romeyn. “It’s not encouraging and it means we’ll have to work even harder to convince people to move forward with their purchases.”

In May, new residential home construction in the US fell by 10 per cent to a seasonally adjusted rate of 593,000 units, its lowest level in five months, the commerce department said last week. Economists expected to see an impact from the ending of the tax credit, but not such a steep drop.

If the weakness continues, the likely conclusion will be that the tax credit brought forward demand from aspiring homeowners but failed to spur a more fundamental improvement in the housing market. The next big test will be new home sales data out on Tuesday. Economists fear the US housing market could be on the verge of a “double dip” – or even a “triple U”, given the fall in new construction over the winter.

“We are going to have a very sluggish time over the summer,” says Kevin Logan, chief US economist at HSBC in New York.

I've seen the pro and con arguments about the tax credit. Frankly, it appears we need to extend it indefinitely at this point simply to clear inventory.