The number of unsold new homes fell 34k in November, the most ever. There are now 372k unsold new homes for sale, significantly below the peak of 570k in June 2006.
The level is approaching normal. The supply problem is in the existing home market. It lags but it’s next: the underbuilding of homes relative to population growth will inevitably result in the filling up of those homes, whether through sale or rental–humans need shelter. I would expect inventories to decline at least 500k to 750k in 2009 because of the population/underbuilding issue. At least 500k will disappear from the underbuilding idea and a further 250k (at least) will result from low mortgage rates and incentives from Barack Obama to spur home buying (4.5% mortgages or tax credits or both).
The math on why this is happening is simple: the construction of new homes has fallen below that of household formation. Housing starts have recently been at about 600k annualized, which works out to about 400k new dwellings, because many new starts are restarts–tear downs and such. Birth statistics and Census Bureau data indicate that household formation will on average run at a pace of about 1.2 million in the current year and immediate years ahead, owing to population growth of about 3.0 million.
This means that home inventories–new and existing combined–could fall by at 600k over the next year, depending on the extent of household formation (it slows during recessions, although it is only a delay in the inevitable–kids won’t live home with their parents forever and roommates go their separate ways, eventually). Shelter is obviously a basic need, which makes the inventory call a bankable top-down theme for 2009.
Chief Bond Market Strategist
Miller Tabak + Co