Tuesday, April 11, 2006

Housing Supply and Demand

Inman News reports a NAR Press release..

"Existing-home sales are projected to drop 6 percent to 6.65 million this year from a record 7.08 million in 2005, according to the latest annual forecast by the National Association of Realtors trade group."

"New-home sales, meanwhile, are projected to fall 10.9 percent to 1.14 million from the record 1.28 million last year – both sectors would see the third best year following 2005 and 2004. Housing starts are forecast at 2 million in 2006, which is 3.2 percent below the 2.07 million in total starts last year, according to the forecast."

So in 2005 there were 2.07 million housing starts, and 1.28 million houses/housing units sold. In 2006 the estimate is 2.0 million housing starts and 1.14 million sales. Wait a minute. Isn't this a huge imbalance? New house inventory will have increased by 1.65 million housing units in 2005/2006 if these figures are correct. In 2004 the average existing home inventory was around 2.5M units. (I'm not sure what the new home inventory was in 2004). Any way you look at is, 1.65 million additional units is a huge inventory increase! This is based on the NAR's (read house price appreciation cheerleaders) own figures and does not evenconsider any possible flipper flops, Boomer drops, bankrupt no-docs pushing additional supply back onto the market.

Analyzing these figures is so straightforward, yet few seem to do it. I guess people look for, and believe what they want, until it's too late and they loose their shirt. Of course it doesn't help that the NAR reports these figures and then make statements such as:

"Home sales will move up and down somewhat over the remainder of the year but stay at a high plateau..."
- David Lereah, NAR, 1929, er I mean 2006.

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