by Bill McBride on 1/20/2011 11:29:00 AM
Thursday, January 20, 2011
Earlier the NAR released the existing home sales data for December; 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.
IMPORTANT: On a seasonal basis, inventory usually bottoms in December and January, and then will start increasing again in February and March. Since the NAR "months-of-supply" metric uses Seasonally Adjusted (SA) sales, but Not Seasonally Adjusted (NSA) inventory, this seasonal decline in inventory leads to a lower "months-of-supply" in December and January.
The key is to recognize the seasonal pattern, and watch the YoY change in inventory.
Click on graph for larger image in graph gallery.
Although inventory decreased from November to December, inventory increased 8.4% YoY in December.
This was one of the key metrics I used in 2005 to call the top of the housing bubble in activity. This is the largest year-over-year increase in inventory since January 2008 and this is something to watch closely over the next few months.
By request - the second graph shows existing home sales Not Seasonally Adjusted (NSA).
The red columns are for 2010.
Sales NSA were above the level in 2007 and 2008, but below the level in 2009.
The bottom line: Sales rebounded in December to just above Tom Lawler's forecast. This was probably due to a combination of low mortgage rates, falling house prices - expecially for distressed properties, and investor buying at the low end.
Inventory remains very high, and the year-over-year increase in inventory is very concerning.