The late summer pause does not alter the forecasted progressive recovery both in housing and the overall economy that will eventually be dated to have begun in June or July. Fiscal shocks to the economy are designed to have a quick and large impact and then taper off quickly. August, September and possibly a little longer is the” taper off” period.  Both housing and the overall economy will either stall or grow modestly during this period.  Then progressive recovery resumes.

The balance of the August new home sales report is very positive. The inventory of unsold homes continued to decline pushing the months’ supply of new homes to 7.3 months. This is the lowest in thirty-one months. It is low enough to permit a gradual expansion of new home sales. But the months’ supply of homes for sale will have to drop to near six months to permit a rapids expansion of new home sales.  Homebuilders will be uncomfortable about their inventory – and so will their lenders – until the months’ supply drops to near five months.

Homebuilders have 114,000 completed homes for sales and 110,000 homes for sale that are still under construction. Both of these totals are less than previous months and on track with the continuous decline for several years. While their inventory is shrinking absolutely and becoming less of a burden due to higher home sales, homebuilders are still carrying an excessively high inventory.  This inventory will be drawn on to meet some sales over then next year, causing new home sales to recover faster than housing starts.

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