Up and Down Wall Street -- "Barrons" February 2, 2004
That simple but rather compelling chart nearby comes to us via the agency of Asha Bangalore of Northern Trust.
online.wsj.com
What it depicts is the rising inventory of unsold single-family houses. As you can see, there are more "for sale" new homes in this fair land of ours than at any time in the past decade.
With residential construction booming, of course, it's only natural that home builders -- never shy about throwing up another structure, particularly when credit is dirt-cheap and demand extraordinarily buoyant -- would be putting up houses as fast as they could. Or that you'd get a constantly replenished supply of new houses coming to market.
But, as the chart makes clear, it's not just a one-month phenomenon. The inventory-sales ratio of unsold new homes climbed to a 4.3-month supply in December, up from four months in November and a low of 3.5 months last June. A trend that prompts this cautionary note from Asha: "Given the robust pace of new housing starts, if employment fails to pick up" we may witness the dread specter of overbuilding.
Having been burned many a time and oft during the years in which the great housing bubble has been in the process of creation, we're a tad reluctant to once more hazard the prediction that its end is nigh. But reluctant or not, we have the feeling that the end may truly be nigh.
What inspires such rank apostasy to the received articles of faith on housing is the very fact that virtually no one agrees with us, except perhaps a few slightly disoriented shorts. More substantively, we don't buy the widespread acceptance of the death of inflation. We think the beast not only has a pulse, but it's showing definite signs of revival. And we base this heretic view both on the logic of the huge rise in commodity prices working their way through the system and on the empirical evidence of routine visits to our local supermarket.
While the Fed may hold to the fiction that inflation is quiescent, the bond market, our hunch is, won't. Which, as night follows day, will be fully reflected in rising mortgage rates. At the very least, that's bound to put a bit of a chill on house buying.
And if we had any doubts that the housing boom is in for a cooling-off, they were thoroughly dissipated by a recent brokerage-firm recommendation in which (one of our keen-eyed operatives reports) the analyst claimed that the housing sector's potential for appreciation was infinite. And, from what we gather, he was dead serious. |
