Wednesday, 28 September 2011

Is Economists’ Gloom Marking the Start of the Recovery?

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With the announcement from the Commerce Department that the sale of new homes in August fell by 2.3 percent compared to July, the Los Angeles Times took on a decidedly gloomy tone, concluding, “Sales of newly built homes in the U.S. appear to be stuck at the bottom.” The report noted that the August numbers translated into an annual rate of 295,000 sales, which is close to the low of 278,000 recorded in August last year, and down from the 1.3 million new homes sold in 2005.

Missing was any attention, however, to two important pieces of the economic housing puzzle in that report. First, the trend for new home sales has been flat for the last 16 months, and the 162,000 newly-built homes presently on the market represent a supply of six months and two weeks. A healthy housing market usually has a six months’ supply of new homes. Translation: The housing market in new homes has hit a bottom, and the supply/demand ratio is almost back to normal.