Backlog of Unsold New Homes Swells

The last time it was this large, you were listening to Blondie.

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It takes some pretty sour news to undercut the already gloomy expectations for the housing market. But today's government report on new-home sales did just that. March sales of new, single-family homes fell 8.5 percent from last month and nearly 37 percent from a year ago—well below consensus estimates. At the same time, the median price declined more than 13 percent from a year ago, "which is the single largest decline in nearly four decades," Joseph Brusuelas, an economist at IdeaGlobal, said in a report.

Another troubling statistic: The inventory of unsold homes increased to an 11-month supply. How big of a supply is that? Well, the last time we had a backlog that large, the film Raiders of the Lost Ark was packing in theaters and children were begging their parents for "He-Man" action figures (1981).

It will be difficult for home prices to stabilize until this backlog works off, which will require further price reductions and lower levels of new home-building activity. "Home building will contract deep into 2008 and...home prices will fall through mid-2009," Brian Wesbury, chief economist at First Trust Portfolios, said in a report.

Need a glass-is-half-full perspective? Here's Bill Hampel, the chief economist at the Credit Union National Association:

I believe a good case can be made that most of the really bad news in the housing market is behind us. This is NOT to suggest we can expect a dramatic resurgence soon, but we're probably only in for a few more months of declines in sales and construction. After that, sales and construction will level, at admittedly low levels, before beginning a very gradual rebound. The reason for this outlook is that unlike previous downturns in the housing market, this time around we've seen unprecedented declines in home prices. These declines in home prices will drive the adjustment mechanism of rising affordability to put a floor under sales and construction.

OK, so maybe it's a glass-is-a-quarter-full perspective—but we'll take it.