Real Estate News

An article appearing today at Bloomberg.com claims that overall housing inventories must fall at least 50% before prices will "stabilize." The article quotes MIT economics professor Will Wheaton to that effect and provides details about how hard the housing recession is hitting home builders.

The article quotes a NJ builder as saying they've cut their prices and lowered their inventory by 50% over the past two years, and yet they still have 1500 unsold houses. These days contractors aren't even thinking of building anything new unless they've got a buyer's contract in hand (or unless they're crazy.)

The article also quotes KB Home co-founder Eli Broad as saying that it's going to take several years to clear the current inventory across the board and that homeowners who want to sell will have no choice but to continue to cut prices. The supply of existing homes on the market is at its highest levels in over 20 years. The article also speculates that 2.5 million more home may be added to the market this year due to foreclosure, which will only tack on more time needed for the glutted inventory to be cleared.

Worse, 29% of the new homes built in April 2008 due to customer orders have ended up back on the market due to order cancellations.

What's it going to take for this housing crisis to end? My guess is that prices are going to have to come down even farther than they've already fallen. I'm expecting a prolonged drop of another 30-40% or so before the market finally bottoms out.