by Bill McBride on 6/22/2010 07:28:00 PM
Tuesday, June 22, 2010
Earlier I posted a graph showing the relationship of existing home months-of-supply to house prices. When months-of-supply is below 6 months, house prices are typically rising - and above 6 months-of-supply, house prices are usually falling (this isn't perfect, but it is a general guide).
So how high will months-of-supply rise this summer?
Here are some estimates of sales via James Haggerty at the WSJ: Outlook for Home Prices Grows Darker
Since April 30, new purchase contracts have plunged ... Lawrence Yun, chief economist for the Realtors, estimated that contracts signed in May were 10% to 15% below the weak level of a year earlier.Contracts signed in May and June lead to sales later in the summer (counted when escrow closes).
Ronald Peltier, chief executive officer of HomeServices of America Inc., which owns real estate brokers in 21 states, said new home-purchase contracts in May and June so far are down about 20% from a year earlier.
Sales in July 2009 were at a 5.14 million rate (SAAR). Usually inventory increases in July, but if we assume inventory is steady at 3.892 million, the following table shows the month-of-supply estimates based on three year-over-year declines sales in July 2009:
|Sales Decline from 2009||July Sales Rate (millions)||Months-of-Supply|
The peak for months-of-supply was 11.2 months in 2008. And house prices? The Case-Shiller composite 20 index fell 17.2% in 2008.
We are much closer to the price bottom now than in 2008, and I don't expect that severe of a price decline. But I do expect house prices to fall in the 2nd half of 2010 and into 2011 - probably another 5% to 10% for the major house price indexes (Case-Shiller and CoreLogic).
Of course inventory could decline or sales increase a little ... and maybe months-of-supply will only be close to double digits.