Wednesday, December 06, 2006

Home Builders: frown on excessive inventory

Existing homes on the market outnumber new homes for sale by about six to one. But, if you look at the incredible run-up in inventories of existing homes, we would argue that a lot of those homes really aren’t for sale. In many cases, homeowners have put their house up for sale at above-market prices and will simply take that house off the market if it doesn’t sell.

The inventory of new homes is real. Builders need to sell these homes. That will be an interesting dynamic to watch. Homebuilders are under more pressure today to control inventories than they were in the past because more builders are public companies. For example, in the 1990 housing slowdown in California, only one of the top 10 builders was a public company. Today, nine of the top 10 builders are public companies. Equity analysts treat homebuilders like manufacturing companies and frown on excessive inventories.

So, we believe builders will be much more aggressive than individual homeowners in cutting prices. They want buyers to purchase new homes, not existing homes. We think homebuilders are going to push on price, so that they make the sale rather than the existing homeowner.


Blogger hemorrhoidforhousing said...

I heard an ad on the radio this morning that a builder is offering upto $100,000 in "savings" for a tract they have in Modesto...seems like the valley is leading the downturn. It will creep over the hills into the Bay Area eventually.

When is the question now.

4:37 PM  

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