Home Builders, the New OPEC

I remember getting reprimanded for using the word "glut" in one of my reports one time.

A middled aged, banker who made money lending money to his nearly bankrupt cronies condemned my report when I said there was a "glut" of housing on the market. "Glut is an insulting word, it suggests gluttony." Which I thought to myself, "Well, that's exactly what's been going on, hasn't it????"

Regardless, I changed the word to "oversupply" but that still doesn't change the fact that the best word in the entire English language to describe the situation was indeed "glut." There was a 12 month supply of housing for the particular area we were looking at and it was the four letter word known as "glut."

And though I have no direct experience in home building, with such over supply and low housing prices it seemed to me that home builders would quit producing homes altogether. That new housing starts would drop to zero, allowing the market to catch up and eat through this excess inventory. Alas, this has not seemed to happen;

For while housing starts have plummeted, they're still producing them at a near historic average. And what I don't get is how home builders can't look at this and realize that are now facing a commodity market. And that if they continue to produce more homes for an already gluttonous market, it will depress their prices further. Therefore home builders as a whole are not much different than OPEC in the late 90's where the price of a gallon of gas was 85 cents. The price of their good is at a historic low and if they were smart, they'd cut off the supply.

Seriously, the best thing for home builders would be to take a year long vacation. You can work 60 hours a week, but the market price for your end product will be so low, that if you just wait a year or two, you could work 40 hours and make the same amount of money in just two years. Why work? Do America and all of the home owners a big huge favor and go on vacation.

Of course, I'm assuming home builders have a basic grasp of economics. And given the ruinous oversupply (read "glut") of homes they produced with not one of them, NOT ONE, conducting an absorption study, I am foolish to think they'd drive housing starts to my recommended red line.