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In Another Good Sign For The Housing Market, Builders Are Clearing Out Their Inventory.

New Home Supply May 2009 If you only saw the headlines this week, you may have missed another positive sign in the housing market.

According to the Census Bureau, the supply of newly-built homes for sale fell to 10.2 months in May, its lowest level in 10 months.

Unfortunately, the New Homes Sales story wasn't positioned as a positively by the press. Instead, the most common headline on the data read "New Home Sales Dip 0.6%" with many journalists referring to the figures as "weak" or "disappointing".

Only, that's not completely true.

See, one of the nice elements of the monthly New Home Sales report is its footnote section in which the Census Bureau talks about statistical Margin of Error and that section tells us that if the Margin of Error is larger than the measurement itself, the report is useless.

And that's exactly what happened in May.

New Home Sales were measured to have fallen by 0.6 percent but that data point was dwarfed by its 17.8 percent Margin of Error, The "headline data", in other words, was just a guess.

The press reported it anyway.

Nonetheless, as it relates to the economy, falling home inventories are a positive. Having 10-plus months of homes on the market is still high historically, but a definite improvement over what we saw earlier this year.

So long as low mortgage rates and aggressive pricing persists from builders, we expect even less supply in the months ahead.

Dave Kosmecki - Guaranteed Rate, Inc.

website: http://www.homeloansmidwest.com/

youtube channel: http://www.youtube.com/midwesthomeloans

blog: http://www.homeloansmidwestblog.com/

Posted by David Kosmecki on 07/06/2009 07:50 PM

Comments (15)

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15 Comments on In Another Good Sign For The Housing Market, Builders Are Clearing Out Their Inventory.

JUL

A 17.8% margin of error is a grossly large amount. Easy to misinterpret.

Shoot there have been elections won that way, A poll has so and so ahead by 22% with th emargin of error 28% stuck on the other page at the end of the collum. Quite smart of you to catch it though. Most (like Me) probably would not read any further than the head line.

David, while a slight drop in new home inventory is a good thing, some of that inventory is being taken over by the banks as builders lose their ability to maintain interest payments. And the demand for new homes is historically low. In all my 40 years of homebuilding, I never experienced the conditions we have now. I doubt I'll see a return to the "boom" times in my lifetime.

I don't care about the 'stats' -- I was just happy to read the positive headline!

;-)

Wow! A 17.8% margin of error. Why didn't they just throw a dart instead?

I do believe that falling builder inventory will be key in the recovery of the market. Thanks for reporting the real story!

In life, there are "glass half empty" and "glass half full" people. This story is living proof that having a more postive attitude - and looking of the postive side - will fuel recovery much more than always seeing the negative. That's especially true when considering the error ratio that is in the disclaimer to many negative stories, as you mentioned.

David,

Good post.

While there is a silver lining in this data, what is being overlooked is that the new home market today looks very similar to what it did last year, and last year was a bad year for real estate. Considering that we have a new $8,000 tax credit, historically low mortgage rates, and record housing affordability, and we still have over a 10 month supply of new homes - that is concerning.

As an aside, the month's supply of housing can vary month over month because of seasonal impacts, year over year is a more accurate indicator in my opinion. :)

Hi Dave -- It's always good to see positive news, so thanks for providng a snapshot. I think anything over 5 months of inventory is not good however.

JUL

The housing market in the Toronto area in Ontario rose 27% is volume in June over 2008 compared to the increase of 2% in May over May 2008. I hope we have "bottomed out". That is what buyers have been waiting for.

Stats don't do it for me, the overall picture and end result is where I look.

Thanks,

Patricia

Dear David:

thanks for the positive news. We appreciate your taking the time to let us know.

Wishing you continued success, Ron & Alexandra

This is great news - That is what I keep preaching - The existing inventory has to get cleared out in order for things to normalize.

LOVE that chart Dave. It speaks volumes. And shows you can twist the numbers any way you want--reporters want to emphasize the NEGATIVE.

David,

Better late than never. For some reason builders have been sooo slow in getting their bloated inventory numbers under control.

SEP

Thanks David,

I am always amazed at our ability to forecast the weather, and the housing markets. Yes - there is data, and history, and we still end up making the message be what we feel is appropriate. I am a marketing professional who loves to use data - - yet somehow wonder if I shouldn't have gone into being a news report writer!?

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