An earlier Market Insights story commented on the weakness in housing starts and residential building permits in March 2008, while completions were still relatively strong. The inevitable result has been an increase in the inventory of unsold new homes.

Market Equilibrium is 4.0 Months
In the latest monthly report, for March 2008, from the U.S. Census Bureau, the number-of-months supply of unsold new homes has shot up to 11.0. This compares with a market equilibrium figure of about 4.0. Market equilibrium is when supply and demand are in good, but not exact, balance.

The number-of-months inventory figure is the number of unsold homes divided by the current month’s sales rate. In March (-1.1%), the number of unsold homes declined again on a month-to-month basis. In fact, the number of unsold homes has actually been adjusting nicely, down by 100,000 units from the summer of 2006 to the present.

Unfortunately, however, new home sales (-8.5%) have declined at an even faster rate. New home sales have been down by between 30% and 40% year-over-year for the past five months. It is the new homes sales rate as the divisor that has forced up the number-of-months inventory calculation.

Sit on a Beach for a Year 
The depth of the collapse in U.S. housing markets has been stunning. At the current sales rate for new single-family housing, everyone could simply go and sit on a beach for almost a year, then start over fresh in eleven months.  − except we’ve all got to try to make a living.

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