Monday, November 09, 2015

Housing: Inventory Build is Over in some Former Distressed Markets

by Bill McBride on 11/09/2015 10:49:00 AM

Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

I don't have a crystal ball, but watching inventory helps understand the housing market.   If inventory kept increasing rapidly in certain markets, then we would eventually see price declines.  However it now appears the inventory build is over in some former distressed markets.

The table below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento (October 2015 not available yet for Phoenix and Sacramento).  Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year.

This makes sense.  Prices increased rapidly in these markets in 2012 and 2013 (bouncing off the bottom with low inventory).  Higher prices attracted more people to list their homes.  Once prices flattened out, potential sellers weren't as motivated to list their homes.  Unlike following the housing bubble, most of these potential sellers probably don't need to sell, so listings didn't grow to the moon!

Now listing are starting to decline, so prices might increase a little quicker.  As an example, according to Case-Shiller, prices in Phoenix only increased 2.4% in 2014, but have increased 3.5% already this year through August.  For Phoenix, the inventory build ended near the end of 2014.

For Las Vegas, the inventory might have just ended a couple of months ago.  If inventory continues to decline, it seems likely price increases will pick up in Las Vegas.

I still expect overall inventory to continue to increase nationally, but this is something to watch.

Year-over-year Change
in Active Inventory
MonthLas VegasPhoenixSacramento
Jan-13-58.3%-11.7%-61.1%
Feb-13-53.4%-8.5%-51.1%
Mar-13-42.1%-5.2%-37.8%
Apr-13-24.1%-4.9%-10.3%
May-13-13.2%-2.1%5.3%
Jun-133.7%-1.6%18.3%
Jul-139.0%-1.6%54.3%
Aug-1341.1%2.4%46.8%
Sep-1360.5%7.8%77.3%
Oct-1373.4%15.7%93.2%
Nov-1377.4%15.2%56.8%
Dec-1378.6%20.9%44.2%
Jan-1496.2%29.6%96.3%
Feb-14107.3%37.7%87.8%
Mar-14127.9%45.5%71.2%
Apr-14103.1%48.8%46.3%
May-14100.6%47.4%83.7%
Jun-1486.2%43.1%91.0%
Jul-1455.2%35.1%68.0%
Aug-1438.8%21.9%60.6%
Sep-1429.5%13.2%50.9%
Oct-1425.6%5.7%29.1%
Nov-1420.0%2.5%36.6%
Dec-1418.0%-1.8%32.2%
Jan-1512.9%-4.9%24.8%
Feb-1515.8%-8.4%13.9%
Mar-1512.2%-11.7%25.1%
Apr-157.6%-13.2%26.0%
May-157.8%-15.4%-0.1%
Jun-154.3%-16.4%-10.0%
Jul-155.1%-15.3%-10.8%
Aug-153.5%-13.7%-14.9%
Sep-15-0.8%-11.7%-18.5%
Oct-15-7.1%NA NA