Home Sales Near Pre-Bubble Equilibrium

Unsold new homes climbed from 2004 to 2006, peaking shortly before the markets crashed and the recession began. As demand plummeted, a greater share of houses stayed on the market, driving up inventory to record levels. Since the first-time homebuyer tax credit expired in 2010, the markets have been in correction mode, leading to the first signs of resurgence early this year.

Home sales in 2012 have surged after hitting bottom in the last year.

And the national inventory of unsold new homes, arguably the recession?EUR??,,????'???s most debilitating remainder, is finally returning to a level more in tune with historical averages, before the housing bubble blew up and burst.

Before the markets crashed, the number of unsold new homes climbed from 2004 to 2006, through what turned out to be the final years of the housing bubble. Concerns about instability were assuaged by the fact that demand was still strong.

The number of new homes peaked in the summer of 2006, when about 570,000 units stood unsold nationwide, as homebuilders finished projects already slated for completion. The amount of homes stayed high through 2007, as demand started to soften.

When the recession began, builders stopped building, but buyers also stopped buying. The number of unsold homes dropped, but inventories rose as houses remained on the market.

The housing inventory, measured in the number of months sales levels could be sustained with the on-hand supply, peaked in January 2009 with a 14.3-month supply, the highest mark since records began in 1963. The historical average before the bubble was a 4.5-month supply.

The first-time homebuyer tax credit, meant to aid the ailing housing sector, drove inventories down in 2009, only to see them spike back up in 2010. Since new builds had been on a steady decline since late 2007, the market spent 2010 and 2011 bottoming out, correcting and recovering from the trauma of the previous years.

Recently, low home prices and interest rates have improved affordability, despite homeownership sinking to levels not seen in 15 years. Distressed home sales, which have been a major drag on the housing market, have occupied a smaller share of total sales this year. Rental prices nationwide have increased, driving the younger generation into the market, which has led to signs of life in both sales and construction as the glut of both new and distressed homes were finally taken off the market by new buyers and investors.

In February, the inventory of unsold new homes fell to a 4.9-month supply, and has remained below 4.5 ever since. With inventory levels back to historical averages ?EUR??,,????'??? even though demand and construction remains well below healthy market levels ?EUR??,,????'??? economists are predicting that 2012 will finally mark a resurgence of the housing sector as a source of positive growth for the economy.