Home Builders Still in the Woods

Drywall

The best number out of today's report on sales of newly built homesis not the 7.3 percent bump up in signed contracts, it's the drop in inventories to a 6.5 month supply.

That number is based on a quicker sales pace and a drop of 5000 in the absolute number of newly built homes on the market.

That volume is the lowest since at least 1963, according to Miller Tabak's Peter Boockvar, who worries that the supply of existing homes is still simply too much for anyone to be touting the builders.

"The best response on the part of builders is to shoot themselves in the foot for as long as they can financially stand, so the market can more quickly absorb the excess inventory of existing homes which make up most of the overall market," writes Boockvar.

Aristar's JT Smith chimes in on the actual April sales number: "Unadjusted sales of 32k makes April 2011 tied for the worst April sales number in recorded history."

My concern is not over the inventory of newly built homes. I think it's a big positive. My problem is the glut of bargain-priced REO (bank owned) homes against which the builders compete.

Check out a chart we re-made from data by the Calculated Risk Blog.

This does not include homes that the big banks own, and it doesn't add in the homes with loans that are 90+ days delinquent, which is 1.96 million, according to Lender Processing Services, or the number of properties that are in the foreclosure process, which is 2.18 million.

Yes, a lot of these REOs are concentrated in the hardest hit states, but there is plenty to go around the nation. Another couple of roadblocks to the builders are higher commodity prices, which make them unable to lower their prices too far (although they are now building smaller, cheaper homes), and the fact that more potential buyers want to live in or closer to major metropolitan areas thanks to high gas prices. That's not where most of the big builders do their work or have their land inventories.

I'm thrilled the builders sold some homes in April, more than the month before, and I know there is a ton of pent up demand out there; I'm just not so sure that demand is headed toward new construction, at least not in the next few years.

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