by Calculated Risk on 3/09/2007 09:16:00 AM

From Bloomberg: Rising Subprime Mortgage Defaults Add to Unsold Homes Inventory

Rising mortgage defaults by subprime borrowers may add more than 500,000 homes to a residential real estate market already beset by slumping prices, according to CreditSights Inc.

In January, 4.09 million new and existing homes were offered for sale, down from 4.43 million in July 2006, the National Association of Realtors and the U.S. Commerce Department said. New homes accounted for 536,000 of the January total, down from a record 573,000 in July.
...
"We estimate that the effect of looser lending standards could translate into another 533,000 homes coming onto the market as borrowers default -- an unwelcome phenomenon given the existing supply surplus," Sarah Rowin and Frank Lee of bond research firm CreditSights wrote in a March 1 report.

The article makes the point that New Home inventories are probably understated because of how the Census Bureau treats cancellations. But the comparison to July 2006 could also mention seasonal factors. It is common for inventory levels to fall during the holiday season, and then to rise again in the spring. A better comparison might be January 2007 to January 2006, and that shows existing home inventories are up 23% YoY from January 2006.