Friday, February 06, 2009
possible inventory peak in housing
Inventory levels increased sharply in 2006 and 2007, but have been close to 2007 levels for most of 2008. In fact inventory for the last five months was below the levels of last year. This might indicate that inventory levels are close to the peak for this cycle.
I agree with Zandi that housing starts will bottom in 2009. See: Looking for the Sun
However I think it is still too early to forecast the bottom in house prices, especially in the mid to high priced areas.
as noted back in july when the first fade of inventories became noticeable, on the evidence of previous downturns, there's likely still at least two years of declining prices in the pipe as we work inventory off. at least with starts way, way down and still declining -- and quite possibly some major builders set to go bankrupt this year -- supply is no longer being added. but there is still a lot of vacant housing, both for sale and rent, as a result of the overbuilding that took place. households are consolidating at the margins, moving in together in a bad economy, countering the gradual growth of population. add to that the massive difficulties in the financial system, which still seem quite far from resolution.
so the potential for a long, drawn-out, overcorrection in housing prices is there. new starts topped in 2005; now we're seeing inventories possibly having topped out in 2008, with (perhaps) starts to bottom in 2009. in the recent previous downturns cited, real prices bottomed out some 6-8 years following the top in starts and 2-3 years following bottoms in starts and sales. so far, the downturn may be of massive amplitude but is conforming to the timing of previous examples -- with a real price bottom to be expected around 2011 or 2012. we'll have to see where valuation metrics then stand.