New home glut: Inventory at 27-year high

Breaking news from MarketWatch: "U.S. home builders have slashed their prices by a record amount, but sales still plunged by 8.5% to a 17-year low in March, the Commerce Department estimated Thursday ... the supply of homes on the market rose to 11 months, the most in 27 years....                     

"Inventories are likely understated as well because of canceled sales contracts."

From the New York Times: "Sales of new homes in March plummeted to the lowest level since the housing recession of the 1990s, the government said on Thursday, as inventories rose to the highest point in more than a quarter century."

The spin you hear from the real estate industry is that falling prices will attract new buyers. It is just as likely the opposite is happening right now: falling prices are scaring buyers. Again from the N.Y. Times: "Prices continue to fall as well, which could discourage would-be buyers from entering the market. The median price of a new home dropped in March to $227,600, down 13.3% from a year ago."

Analysis: This is a pretty big economic problem. Home-building is at a standstill because of the inventory glut. It doesn't make sense to build homes if you can't sell them.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Catalist Homes

Comments

[Figgins]

Mike, what are you smoking? It must be really good @#$% to bend reality that far.

[Jay Nickell]

I am 51,and I have seen this cycle repeated time and time again. I can only hope that someday business and government will realize that supply should be a product of demand, not the availability of cheap capital used to create more supply than the market can possibly absorb.

By the way, wealth is created by purchasing assets others are selling in a herd mentality.

[Metlin]

@ grow:

Greed is good. But you must be wise about it.

A lot of people bought houses without thinking about the market, or the consequences. Similarly, a lot of these very same people borrowed against their homes for their flat-screens and vacations.

Well, too bad. The bubble is burst, and idiocy is punished. News at 11.

[Sam]

What is wrong with the housing industry? Duh! Greed all across America. Everyone selling anything wants top price and not a cent less for their s....stuff. "Greed is the American way."

Builders have cut the price of new homes?? Well, buddy builders, not enough!

[Billy]

Almost all markets reflect consumer confidence. A home, for most people is the biggest purchase of their life. If a family is worried about their economic future why would they attempt such a large purchase? Good paying jobs are scarce. You can’t hope to make a mortgage if you think that you will be working at McD’s next year.

[Steve]

There is a price at which any house will sell today. And it is obviously lower than what any unsold home is listed at. Headlines like these are pointless. The homebuilders are attempting to sell houses above what anyone is willing to pay for them (ie. above the going rate, market price). That will always result in lower sales figures. If they want to sell their inventory then they have to lower the prices to a level where a buyer is interested in making a transaction.

[oldbiker1]

At least that sign company is busy -- that's something. As far as house prices ... what goes down must come up? right? over the last 100 years it has been a "down one step, up two steps" - we bought in '68 for $27,500 - today, even at depressed prices, our house is worth $400K -- so, prices will go back up eventually.

[Daniel D. Johnson]

SO you think sales are bad. Have you bothered to chec the construction quality? Have You read any of the materials re the por quality of many new homes for sale? Dan Johnson 720-733-7819

[southerngent]

53% of the children attending public schools in 14 Southern States are now elgible for some type of welfare. Read that again very carefully and think about it. In the past a man who found himself without a job could fall back to another level and continue to support his family, maybe not at the same lifestyle..but, he could put food on the table. Now that most of our factory jobs are gone, we have lost that ability. A man without a job and can't buy or sell a house to relocate....creates a very big problem. NAFTA did that....and you are a fool if you think it will not get to you a some point. Yes, Welcome to the new world economy. Got Rice ?

[Alex]

The housing boom is primarily why we're in an economic meltdown. Mortgage companies qualified those who couldn't really afford the home and in turn caused finanacial plumiting

[William]

You probably are frustrated for not being able to afford to buy a house but don't jump for joy because the housing market is affecting the economy severely that you may not have a job to even put food on the table...

[AZmac]

Bush says, "It's not a recession, it's a period of slower growth", "it's not an escallation, it's a surge."

You can mince words, and you can play with semantics, but a spade is a spade. And this is a president who has never learned how to say "nuclear."

I'll be so joyful when the saddest presidency this nation has ever seen, passes into history, and I never have to look at this buffoon ever again.

[dharper]

So what's the big deal here?

1. Builders overbuilt for years.
2. Politicians believed everyone was entitled to buy a home regardless of whether or not they could pay for it.
3. Thousands of people bought homes far in excess of their incomes because lending institutions made millions executing loans they new were not viable and the selling them off to another entity.
4. That entity then bundled them off to "hedge funds" and VC entities which in turn "re-bundled" them to the Bear Stearns of the world.
5. Now the government reinserts their "intelligence" back into the chaos they created and creates a mortgage relief package to bail out the people who over bought.
6. The the Fed jumped in and begin bailing out the greedy financial institutions who did not have enough capital to cover their loses (a***s).

So, my fellow taxpayers, guess who pays for this multitude of stupidity? You and I who have worked and saved and lived within our means which is no longer a virtue in this country.

Socialism is beginning to run rampant thru this nation. It is disgusting.

[Jackie Romulo]

In Lakewood there is a new community that has halted production since their sales are stagnant. There are about two dozen homes that have frames and shingles ready to be put on the roof, but it's been in that stage for about 2 or 3 months now. It's kind of scary. A ghost town in a neighborhood that never was.

[John Hessler]

Mike: This story is about the LA market, ya dummie

[Jerry Odom]

This must not apply to Louisiana. People are still moving in to new homes as fast as they can throw up these neighborhoods. Unreal

[mark g]

Here's a good example of why no one is buying... a home bought near/at the peak for the price below, then remodeled and put back on the market for 1.15 million and has since been reduced to the below price. It's in an average middle class neightborhood on a fairly busy street... DUH! This house needs to come back to it's bubble peak price... if it sells for anywhere near what they're asking, the buyer is clinically insane! This, of course, is just my opinion... ;-)

3235 Woodruff AVE
Long Beach, CA 90808
Price: $979,900
Last Sale: $480,000 (04/22/2005)

[Fred]

Mike, it's all connected. LA's housing market does not exist in some magical vacuum. Same goes for the Westside.

[Nanan]

Not only are the prices of homes still overly inflated even after the market crash there is also this small problem of market saturation. It is not like millions of people are becoming homeless, the problem is that builders keep building and building to the point where there are now more houses then people to live in them. Granted this is not in all areas, the housing market in LA is still going at 5-10x over material cost of the house.

If it cost 30k for the land, 40k for the materials and 30k for builders/contractors then you have a 100k house but these people are trying to sell it at 2-300k.

[Fred]

As an addendum to my last post, yes, demand in L.A. is and always will be high. It's beautiful here and you can make a lot of money. However, demand for homes at these price levels is very very low. It's a money supply problem. People wouldn't be able to buy even if they were dumb enough to try in this market.

[E]

Yet still people think that they should get triple what they paid for their house in 1999.

[tom]

supply and demand:

housing market was grossly overvalued, and now people realized houses are simply too expensive. In addition, foreclosure problems and credit debacle mean fewer people can purchase houses. Prices will fall until houses are no longer overvalued in the view of most buyers.

People just can't get passed the fact that housing was grossly overvalued--they expected the prices to increase forever without good economic justification.

[JohnnyB]

PV wrote; "It is just as likely the opposite is happening right now: falling prices are scaring buyers."

Combine that with the fact that falling prices are scaring millions of sellers of existing homes (waiting for the market to stabilize - at their continued price peril) and we have an actual glut of stupendous, record breaking proportions. Forget 27 year high... how about EVER.

Sure was nice of our big business lobby-led government and Wall Street to create an illusion of wealth through debt on the one hand, while actually DILUTING our country's wealth and future prosperity on the other hand… by selling out to the Far East, the Middle East and Mexico.

The strength of this country has been severely weakened because a small percentage of mega wealthy men stuck a arterial pipeline in our healthy blood supply, connected it to a proprietary derivative-based profiteering filtering system and re-circulated watered-down, virally infected, serum in it’s place. Let’s just call it piss.

Their criminal and fraudulently-based global financial product game plan gone awry has now begun to reek serious financial terror on 98% of the people in this country. Along with a world population of billions vulnerable to large increases in commodity/food prices and a sever weakening of the dollar

These financial institutions were/are allowed to pocket INSTANT, record breaking profits (against flawed mortgage backed future earnings formulae) all along Bubble Blowhard Boulevard by writing the rules, all the while knowing the charade cannot last. And, because the distribution of wealth was so egregious, the enormity of their greed was so widespread and so insanely overleveraged, they have the audacity to claim any negative repercussions against them will be akin to nuking the “delicate” system and therefore our country’s prosperity.

THREE CHEERS FOR CDO’s, CDS’s AND UNKNOWABLE COUNTERPARTIES, the biggest F.I.R.E scam we will ever witness in our lifetimes. Thanks for the illusion traitors.

[amir]

"One of our Mexican friends told us he and his fellow workers were relocating to Brazil due to the lack of construction work in the USA now."

Yes yes. Brazil is the new bubble!

[this is a correction - this is not the rapture]

This is a correction, it is only a correction to an over valued market. If this were the actual rapture it wouldn't matter anyways because we'd cease to exist. In the event of the rapture you will not be aware of the failure of the banking system, the loss of of wealth or income or the need to regain your profits or the appraised value of your assets. In the meantime please go back to work or get a better job or get more training so that you don't have two income households working as a realtor and the other spouse working as a mortage broker both of whom believe they can also run a property management firm on the side.

The turth is that this correction will be good for America in the long term if and when people start to accept living within their own cash flow positive means. If you are still in shock over the correction go to your nearest place of worship and ask to volunteer helping the poor and sick so you can see real suffering and then you'll feel like a real jerk for feeling sorry for yourself.