Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

This works as an intervention as well as a question because it is exactly along the lines of President Plosser’s questions. First, the assumption about inventory and where is normal—the past ten years through the housing boom have created a normality, if you will, of very low inventories, as compared with the longer-run inventories. So the question is, Where is normal, and where do builders want normal to be? How much do they have to do to get back to the level where they were for the past ten years versus the level that you could figure over a twenty-year or thirty-year period? I talked to a group of builders about this a couple of months ago and did not get a whole lot of feedback from them on where they thought they might like to be, although all of them, I am sure, are making that calculation for themselves in one way or another in their business on a day-to-day basis. But I think it is hard to say that any given level of inventory—seeing how much it changed between the past ten years and the ten or twenty before that—is “normal” with any confidence. Second, I have been taking a bit of confidence, and maybe this is wrong, from the fact that, if you smooth through sales of existing homes, which of course are a much bigger volume than sales of new homes, on a three-month or a six-month moving average, you do see a dip at the beginning of this year and then you see it come back a little in the environment of reasonably low interest rates for prime borrowers and decent interest in terms of mortgage originations and so forth, but obviously not as high as it was. I am thinking that that maybe says something about the demand side, but maybe this is just cockeyed optimism on my part.

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