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Sign of hope for housing? New-home inventories slide again

August 26, 2008 | 11:50 am

Home builders look like they got the memo on the U.S. housing glut.

In an otherwise disappointing government report on July new-home sales today, the data on inventories provided some encouragement.

The number of new homes for sale nationwide at the end of July totaled 416,000, down 5.2% from June, seasonally adjusted, the Commerce Department estimated. That was the biggest one-month drop since 1963, according to Gary Bigg, an economist at Banc of America Securities.

Unsold new-home inventories have tumbled for 15 consecutive months. The July total was down nearly 23% from 539,000 in July 2007.

Newhomes "The trend in declining homes for sale suggests that home builders are having some success in working off unintended inventories," Bigg noted.

Builders either are halting construction on their own or they’re being forced to do so by a lack of financing.

The number of homes under construction at the end of July (and not yet sold) totaled 185,000, down 6.6% from June and down a stunning 34% from July 2007.

Although inventories are waning, the July sales data shouldn’t spur a new building wave: New homes sold at a seasonally adjusted annualized rate of 515,000 units in the month, up 2.4% from June. But sales were up because the government revised the June sales total down to an annualized 503,000 units from the 530,000 originally reported. The actual number of new homes sold in July: 43,000, vs. 46,000 in June.

At the current sales pace, the inventory of new homes on the market would take 10.1 months to sell, down from a recent peak of 11.2 months in March but well above the 8.3 months of July 2007.

New homes are a fraction of total home sales, of course, because the existing stock is mammoth. On Monday, the National Assn. of Realtors said the number of existing single-family homes and condos for sale hit a record 4.67 million units.

Still, as builders cut back, that should eventually help existing-home sales, because potential buyers will have fewer choices in the new-home market.

On Wall Street, builders’ stocks have bounced from their multi-year lows in July, but the market clearly isn’t betting on any big turnaround in business soon. KB Home is at $17.67 today, up 22% from its low of $14.49 in July. D.R. Horton is at $10.92 today, up 14% from its low of $9.57 in July.

Interestingly, "short sellers" -- bearish traders who borrow stock and sell it, betting on lower prices -- have been laying off many of the builders in recent months. The number of shorted shares of KB Home dropped from 22.7 million at the end of June to 16.1 million at the end of July and to 13.5 million as of Aug. 15. Are the shorts figuring that things are as bad as they're going to get?

Photo: A Lennar Corp. development in Santa Clarita. Gus Ruelas / Associated Press

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