The housing starts figures released this week were weak, but hopeful, as the total number of starts increased unexpectedly.

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As Calculated Risk points out, however, you can’t look at the overall housing starts number and make any conclusions about the new home market, which has been in virtual hibernation for some time now.

The key indicator to being able to call a bottom is to identify an inflection point where sales begin to outpace housing starts significantly enough to both lower existing inventory and justify the risk of starting more new homes.

The current status is, as Calculated Risk calls it, “a race to the bottom.” Starts and sales are both dropping. The good news is that sales have outnumbered starts for the last few quarters: that helps to work down the 13+ month inventory of news homes that exists.

In every part of the housing market, we’re getting to a place where you can begin to see the bottom. It’s like the muddy floor of a pond: you can tell that there’s a bottom somewhere near, you just can’t find the firm foundation.