US Housing Inventories Reach Record Highs

Housing sales declined less than expected at 1% in April, but inventories grew to record highs. In yesterday’s post about the possibility of an oil bubble, we mentioned how high inventories in housing - the last big bubble - and record foreclosures, are dealing a double whammy to the real estate market. Today we saw just how big those inventories were. There are now 4.55 million single-family and condo units for sale, the most since combined tracking began in 1999, and enough to last 11.2 months at the current sales pace. For single family homes the index stretches further back, and we now have the most inventories - relative to sales - since 1985.

This huge backlog of housing inventory can only depress housing prices further and combined with foreclosures will make it very difficult for financial institutions holding mortgage backed securities to get much value on their holdings. Of course they won’t be the only ones affected, as was seen with Home Depot’s [[hd]] earnings a few days ago, people are buying less from them as less houses are being bought and refurbished. Then there are the construction companies which have been under pressure since the start of this crisis that won’t be able to pick up as long as there is such an overhang of inventory waiting to be sold. All in all, it looks like the housing market still has a long way to go before it hits bottom and along the way we will see fallout from a lot of the companies who were heavily invested in this last boom.

Naturally, the market is feeling the heat today from the continued housing slump. AIG [[aig]] has had its ratings cut by Moody’s to Aa3 from Aa2 on concerns about its huge exposure to US mortgage debt and credit derivatives. In Europe, Airbus was valued below $0 as shares of parent company EADS declined on the back of high oil, the low US dollar, and of course the continued delays in Airbus’s manufacturing and delivery of planes.

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