That may be true in many other industries, when over production can be dealt with by cutting back output and allowing consumers to mop up the excess. But housing is different.
If a consumer is looking at, say, a lawnmower. He/she buys what’s available at the store and may be incented by a large markdown if there are too many sitting in inventory.
The customer doesn’t special order the product, picking from various colors and customizing features. But housing, as already mentioned, is a different animal, and many want to choose from a variety of options that are available when their hearts are set on buying a “never-lived-in house.”
The chart below looks at single-family housing starts and compares starts to traffic from prospective buyers, a component of the Housing Market Index, who traipse through model homes.
(click to enlarge)
As the data suggest, traffic plays an important role in single-family starts.
When traffic headed lower between 2007 and 2008, starts declined. But as lookers began to pick up, the increase in additional customers helped to bolster starts.
Recent trends, however, have not been so sanguine, and single-family starts are just off a 15-month low.
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