"If we're building 500,000 [houses a year], we are eating
up that [excess housing] inventory. And the faster we eat up
that inventory, the better off we are."-- Warren
Buffett
Call it a silver lining: Homebuilding is going nowhere
fast compared with household creation. And as Buffett points
out, that's good news, since it means we're chewing through
excess inventory. But it also shows the housing market is
still a ways from recovery mode. Â
September housing starts came in at an annualized 590,000,
below expectations. Over the past year, here's how monthly
starts have fared:
Month
Housing Starts
Annualized, Seasonally Adjusted
September 2008
822,000
October 2008
763,000
November 2008
655,000
December 2008
556,000
January 2009
488,000
February 2009
574,000
March 2009
521,000
April 2009
479,000
May 2009
551,000
June 2009
590,000
July 2009
593,000
August 2009
587,000
September 2009
590,000
Source: U.S. Census.
This is starting to show a fairly clear trend: Housing
starts have probably bottomed, but are painfully slow to
rebound. Shares of homebuilders like
Beazer Homes (NYSE: BZH),
Hovnanian (NYSE: HOV), and
Pulte Homes (NYSE: PHM) all sold off on the
latest numbers.
You can blame that slow rebound on a few things: First,
foreclosures are still a disaster. Plenty of subprime
borrowers have been purged from the market, but now a
wave of option-ARMloans are resetting and recasting,
pushing armies of
"prime" borrowersinto foreclosure. More foreclosures
equals added supply. More supply depresses the need to
build.
Second, the $8,000 first-time homebuyer credit is
scheduled to end next month, meaning demand from first-time
homeowners will fade, as happened when cash-for-clunkers
ended. In anticipation, homebuilders are likely hunkering
down. This should surprise no one: When you pay people to buy
homes, they buy more. Stop paying them, and they buy less. No
magic tricks here.
The big issue is how much more supply needs to be eaten
away. This is an incredibly difficult question, because the
"shadow inventory" is anyone's guess. Shadow inventory is
composed mainly of two parts:
Â
No one knows how large this shadow inventory is, only that
it's somewhere between huge and catastrophic. Any rebound in
prices could explode new inventory, pushing prices back
down.
What we
doknow, however, are the on-market inventory
numbers:
Month
Months of Supply, Unsold Homes
August 2008
10.6
September 2008 Continued... |