by Bill McBride on 12/20/2012 11:29:00 AM
Thursday, December 20, 2012
This was another solid report. Based on historical turnover rates, I think "normal" sales would be close to 5.0 million, so existing home sales at 5.04 million are pretty close to normal.
However a "normal" market would have very few distressed sales, so there is still a long ways to go. One key to returning to "normal" are more conventional sales and fewer distressed sales. Not all areas report the percentage of distressed sales, but the areas that do have shown a sharp decline in distressed sales, and a sharp increase in conventional sales.
The NAR reported total sales were up 14.5% from November 2011, but conventional sales are probably up more than 20% from November 2011 (and distressed sales down).
And what matters the most in the NAR's existing home sales report is inventory. It is active inventory that impacts prices (although the "shadow" inventory will keep prices from rising). For existing home sales, look at inventory first and then at the percent of conventional sales.
The NAR reported inventory decreased to 2.03 million units in November, down from 2.11 million in October. This is down 22.5% from November 2011, and down 30% from the inventory level in November 2005 (mid-2005 was when inventory started increasing sharply). This is the lowest level for the month of November since 2000. Inventory will be even lower in December and January - the normal seasonal pattern - and then start increasing in February.
Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.
Click on graph for larger image.
This graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.
This year (dark red for 2012) inventory is at the lowest level for the month of November since 2000, and inventory is sharply below the level in November 2005 (not counting contingent sales). The months-of-supply has fallen to 4.8 months. Since months-of-supply uses Not Seasonally Adjusted (NSA) inventory, and Seasonally Adjusted (SA) sales, I expect months-of-supply to fall further over the next couple of months before increasing in February.
The following graph shows existing home sales Not Seasonally Adjusted (NSA).
Sales NSA in November (red column) are above last year. Sales are well below the bubble years of 2005 and 2006.
• Existing Home Sales in November: 5.04 million SAAR, 4.8 months of supply
• Existing Home Sales graphs