Wednesday, February 25, 2009

More on Existing Home Sales (and Graphs)

by Bill McBride on 2/25/2009 10:30:00 AM

The NAR press release is in the previous post. Here are some graphs of existing home sales ...

Existing Home Sales Click on graph for larger image in new window.

The first graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in January 2009 (4.49 million SAAR) were 5.4% lower than last month, and were 8.6% lower than January 2008 (4.91 million SAAR).

It's important to note that about 45% of these sales were foreclosure resales or short sales. Although these are real transactions, this means activity (ex-distressed sales) is under 3 million units SAAR. (edit: fixed typo)

Existing Home Inventory The second graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 3.6 million in January, from an all time record of 4.57 million homes for sale in July 2008.

Usually inventory peaks in mid-Summer, and then declines slowly through November - and then declines sharply in December as families take their homes of the market for the holidays. Typically inventory starts to increase again slightly in January, however this month there was a slight decrease.

Usually most REOs (bank owned properties) are included in the inventory because they are listed - but not all. Recently I've heard a number of stories about lenders holding REOs off the market, but I can't confirm this.

Existing Home Sales Months of SupplyThe third graph shows the 'months of supply' metric for the last six years.

Months of supply decreased to 9.6 months.

Even though the inventory level declined, sales fell even more, leading to a higher "months of supply".

Here is another way to look at existing homes sales - monthly, Not Seasonally Adjusted (NSA):

Existing Home Sales NSA This graph shows NSA monthly existing home sales for 2005 through 2009. Sales (NSA) were slightly lower in January 2009 than in January 2008. This is the fourth straight year of declining sales.

Again - a significant percentage of recent sales were foreclosure resales, and although these are real sales, I think existing home sales could fall even further when foreclosure resales start to decline sometime in the future.

Existing Home Inventory NSA The last graph shows inventory by month starting in 2004.

Inventory levels were flat during the bubble, but started increasing at the end of 2005.

Inventory levels increased sharply in 2006 and 2007, but have been below the year ago level for the last six months. This might indicate that inventory levels are close to the peak for this cycle. Note: there is probably a substantial shadow inventory – homeowners wanting to sell, but waiting for a better market - so existing home inventory levels will probably stay elevated for some time. There is also the possibility of some ghost inventory (REOs being held off the market).

It is important to watch inventory levels very carefully. If you look at the 2005 inventory data, instead of staying flat for most of the year (like the previous bubble years), inventory continued to increase all year. That was one of the key signs that led me to call the top in the housing market!

If the trend of declining year-over-year inventory levels continues in 2009 that will be a positive for the housing market. Prices will probably continue to fall until the months of supply reaches more normal levels (in the 6 to 8 month range), and that might take some time.