More New Homes for Sale

Peter Coy

Housing bulls are happy about today's Commerce Dept. report on new home sales. They were up 13% from September, seasonally adjusted, and up 9% from a year ago. What's more, sales in earlier months were revised upward. Action Economics said "now it's the U.S. popping bubble theory that's popping."

There's no question that sales remain amazingly strong. The real question is how long it can continue. Remember, yesterday the National Association of Realtors reported a big increase in the inventory of unsold existing homes. And today, the Commerce Dept. said the inventory of unsold new homes is also rising. It's up 20% from a year ago, even more than the increase in sales.

To be sure, not all of those unsold homes are actually ready for occupancy--only about a fifth are. The rest, as usual, are under construction or in the planning stages. If builders respond to signs of a slowdown with alacrity, they could avoid being stuck with lots of unsalable homes. But will they? I like what Wachovia Corp. said about that today: "Problems will not arise unless all of the homes that are not yet started are built through completion and, at the same time, sales slow significantly."

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