SB...that's exactly the response I expect and am pleased to see from "the man on the street"...if you'll pardon the coloquilism. I want to see massive pessimism toward housing. I want to see the magazines, newspapers and blogs pumping out "the housing sector is broken" or (better yet) "the housing sector in the US is gone forever...it will never recover..."
Those were the headlines that led us out of the last four cycles. Your "backlog" is the "month's supply" figure I assume. Historically it has reached it's annual high in April-May. This year is no different except that the buyers credit skewed the April 2010 numbers. There were also a lot of extraordinarily shaky deals constructed by well meaning but inexperienced agents desperate to make sales at any cost ahead of the tax credit. A lot just crashed and burned in the wake of tighter mortgage restrictions. I'll bet the number of contingency contracts that got clipped was approaching 30% which, of course, all dumped back over into May's month's supply inventory number. The industry (IMHO) hit bottom in February-March. That does not mean there is going to be a noticable recovery starting immediately. I think we begin to see the average layman start to notice the market pickup sometime around Sept-Nov this year. I then expect a dramatic...well, lets say "substantial" surge in buying beginning shortly after the holdiay season. By May of 2011, there will be no doubt whatsoever the recovery in housing is real and growing stronger.
The recovery curve is picked up inside the industry first. That is why you saw a ton of smart money moving into the stronger building stocks in Feb-Mar. That money will be on the move again once the July 2010 numbers come out (IMHO). Permits are up strongly (28-29%) year over across the US. The price dip you refer to was most likely desperate homeowners strongly lowering prices as the April 30 tax rebate date loomed. May inventories of existing housing reflect the "dumb" factor left over after the tax rebate expired and at the end of every housing decline...those homeowners stuck in 2006 who will not face reality and lower their prices to reflect the market. Now is this recovery going to absorb those homeowners as they believe...nope. Prices will be the last thing rising. So expect to see the "dumb" factor dragging up month's supply numbers for another year.
Lennar has cut costs across the board dramatically. They have gone hard-core on their suppliers. They build a good home (although you never SEE that in the blogs and "disaster" stories online) and their contractors only hire the best which should be an easy ramp up since half the country's construction population is or recently was out of work. They are ready to come out of the gates more competitive against both other builders and the existing market than at any time since the 1990s. What will drive new housing is partially what you were afraid of. People absolutely will not buy a high ticket asset they believe will depreciate. Which is why they are looking at these dopes in their existing homes who still think they will be getting a 2006 price in a dramatically reduced 2010 market. Now seeing those prices and comparing them to the cost of upgrading to a nice, modern, highly energy efficient green home, a large percentage are opting to build in many cases instead of buy. These buyers are a ton smarter and more savvy than a generation ago. They factor in every dime when weighing the buy/build factors. Energy costs, maintenance and personal time required for general upkeep carry almost as much weight as the price tag. And that is where I see the recovery starting with Lennar and a few other upper echelon lean, mean and green builders leading the way.
We have it all...left over inventory which will become stale and never sell anyway skewing the supply numbers, exisiting home owners seeing that and waking up to work with their agents to adjust prices up front to reflect reality so they can actually sell the home and a whole new breed of new home buyers who are fixed like a laser on considerations of the entire package of costs surrounding home ownership. And the media and most of the street calling the end of housing as we know it forever and a market that may be "depressed for decades". I love it....the recovery has finally begun. All IMHO.
SBB
