U.S. Number-of-months Inventory at 10.6
The number-of-months inventory of unsold new homes in the United States dropped slightly in April 2008 to 10.6 from 11.1 the month before. This is only a small decline, but combined with a number of other indicators, it adds to the collection of better news on U.S. housing markets that has been accumulating. By the way, a healthy inventory level, where demand and supply are in good balance, is about 4.0 to 4.5 months.

The number-of-months inventory figure is a mathematical calculation based on two key series: (1) the total number of unsold homes divided by (2) the current month's sales rate. Since mid-2006, the number of unsold homes has been dropping. Unfortunately, sales have been falling even faster. The result has been a steady rise in the inventory level.

Now it appears that this dilemma may be near resolution. In April, sales increased on a month-to-month basis for the first time in a long while. This is very good news. In other words, both of the key measures are finally moving in the right direction − "unsold" units down and sales up − to lower inventory.

Under Construction and Completions also Providing Relief
Two other series will also help with the inventory level moving forward. "Under construction" and "completions" are the two largest sub-components of the "unsold" figure. Units under construction were -0.7% in April versus March and completions were -16.0% on a month-over-month basis. Privately-owned housing completions in April were 1.000 million units (at a seasonally adjusted annual rate), almost exactly the same level as starts at 1.032 million units.

Before one gets too carried away with enthusiasm, however, consider the fate of new home sellers in the industry. The latest level of new home sales is -42.0% versus a year ago in April 2007. Much more shocking, however, is the fact that it is -62.0% versus its peak level in July 2005.