View from the Observation Deck

1. Today's blog post is a follow-up to our 11/15 effort ("A Status Update on Homebuilding").
2. The chart paints a clear picture of the inventory work-down in new and existing home inventories, which now stand below their 10-year averages.
3. Existing home inventories stood at 5.4 months in October 2012, while the supply of new homes was down to 4.8 months. Less than 5 months suggests a healthy housing market.
4. From a pricing perspective, the peak in home values occurred around the end of Q1'06.  Inventories continued to surge after that peak (see chart).
5. Inventory levels of existing homes, in particular, needed to normalize before a renaissance in new homebuilding could materialize, in our opinion.
6. The rebound in the sale of new and existing homes has not gone unnoticed by investors.
7. Three of the top 10 performing subsectors of the S&P 500 (Y-T-D through 11/29) were household appliances (#1), homebuilding (#2) and home improvement retail (#6).