Monday, May 24, 2010

Existing Home Sales: Inventory increases Year-over-Year

by Bill McBride on 5/24/2010 11:25:00 AM

Earlier the NAR released the existing home sales data for April; here are a couple more graphs ...

The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Year-over-year Inventory Click on graph for larger image in new window.

Inventory increased 2.7% YoY in April, the first YoY increase since 2008.

This increase in the inventory is especially concerning because the reported inventory is already historically very high, and the 8.4 months of supply in April is well above normal. The months of supply will probably decline over the next two months because of the increase in sales due to the tax credit (reported at closing), but this will be something to watch this summer and later this year.

Perhaps this was an especially large surge in inventory as sellers tried to take advantage of the tax credit, but it is also possible that we will see close to double digit months of supply later this year.

Existing Home Sales NSA The second graph shows NSA monthly existing home sales for 2005 through 2010 (see Red columns for 2010).

Sales (NSA) in April 2010 were 26% higher than in April 2009, and also higher than in April of 2007 and 2008.

We will probably see an increase in sales in May and June - perhaps to the levels of 2006 or 2007 - because of the tax credit, however I expect to see existing home sales below last year in the 2nd half of this year.

I think this was a weak report. Sales were up because of the tax credit (pulling sales forward), but that does very little for the economy. The key is the increase in the inventory and months-of-supply, and if these two measures increase later this year (after the distortions in May and June), then there will be additional downward pressure on house prices.