Housing Inventories Falling.

According to Tony Crescenzi of Miller Tabak + Co., LLC and a contributor @ The Street.com-New home sales fell to a record low annual rate of 309,000 in January, from 344,000 in December. Importantly, inventories continued to decline on an outright basis and are now near normal levels after having moved materially above normal levels in 2006.

The current level is below both the 25-year average of 355,000 and the 15-year average of 369,000. Inventories are falling because builders are severely under-building relative to population growth and household formation. Crescenzi asks an important longer term question. "Where will the country's 3 million additional inhabitants live when they enter the country this year? It is a simple fact of human existence that people need shelter. I therefore am sticking firmly with the idea that inventories have peaked and will continue to move downward in the time ahead, on the basis of this very bankable top-down theme. At least 500,000 and probably closer to 700,000 homes will be removed from the inventory problem by year's end".

According to Crescenzi "People will fill up empty space one way or another, whether through renting or buying. Sales needn't increase to fix the inventory problem, although sales are obviously needed to let the inventory dynamic take power over forced sales from a price perspective. Still, ultimately, supply will win out, and it is shrinking for both new and existing homes, despite the very factors that skeptics will say will stymie future declines".

Link: http://www.thestreet.com/b/rmoney/tcrescenziblog/10466400.html {Subscription may be required to view this link.}