At present the overhang in inventories, both of new and existing homes suggests that prices will continue to fall. In the new homes market, builders have managed to reduce the number of unsold homes from 572k at the peak to 416k in July, but at past lows the number has dropped below 300k. The overhang of existing homes for sales has yet to fall, standing at 4.7 million, compared with less than 2.5 million in the 1998-2004 period. Some homeowners are probably reluctant to accept low offers but this may change if prices keep falling. The US Census Bureau also produces a series showing the proportion of houses empty and for sale. This has surged from its normal level under 2% of the housing stock to 2.8%, which translates into roughly 800k excess empty homes for sale.

Home sales appear to have stabilised and inventories are coming down on some measures but there is still a major overhang of supply putting downward pressure on prices. Measures of valuation suggest prices need to fall another 20% on the Case-Shiller index to return to previous cycle lows. On an optimistic scenario for the economy and housing the bottom for prices may be reached in 2009 with the Case- Shiller indices down another 10-15%. There is a more pessimistic scenario, which remains a serious risk, that a downward spiral for the economy, house prices and the financial sector takes house prices much lower still.