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Friday, May 25, 2007

More on Existing Home Sales

by Calculated Risk on 5/25/2007 11:24:00 AM

NAR reported that existing home inventories are at record levels today. To put these numbers into perspective, here are the year-end inventory and months of supply numbers, since 1982 (Note: The only data I have is year-end starting in 1982).

Existing Home Inventory Measures Click on graph for larger image.

The current inventory of 4.2 million units is an all time record. The "months of supply" metric is now above the level of the previous housing slump in the early '90s, but still below the levels of the housing bust in the early '80s.

The "months of supply" is calculated by dividing the total inventory by the seasonally adjusted annual rate (SAAR) of sales, and multiplying by 12. Currently inventory is 4.2 million, SAAR sales are 5.99 million giving 8.4 months of supply.

Both the numerator and the denominator are moving in the wrong direction. Not only is inventory at record levels, but sales - though falling - are still significantly above the normal range as a percent of owner occupied units (a measure of turnover). See this post from last year Historical: Existing Home Sales and Inventory.

And writing about sales, the followings shows the actual cumulative existing home sales (through April) vs. three annual forecasts for 2007 (NAR's Lereah, Fannie Mae's Berson, and me).

Existing Home Sales Forecasts My forecast was for sales to be between 5.6 and 5.8 million units (shown as 5.7 million).

To reach the NAR forecast (revised downward on April 11 to 6.34 million units), sales will have to be slightly above 2006 levels for the remainder of the year. Given tighter lending standards, we can probably already say the recent NAR forecast is "no longer operative"!