Monday, December 10, 2007

Comments on the 2008 NAR Forecast

by Calculated Risk on 12/10/2007 10:45:00 AM

Included in the NAR Pending Home sales release was their 2008 forecast::

Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006.
First, will sales in 2008 be the "fifth highest on record"? The answer is it will be close, since it appears sales will be just over 5.6 million in 2007.

Here are the top existing home sales years:

RankYearSales (000s)
1) 2005 7,076
Existing Home Sales and Inventory as Percent of Owner Occupied Units Click on graph for larger image.

This graph shows existing home sales and year end inventory since 1969 (inventory since '82). For 2007, 5.6 million sales and current inventory are graphed.

For the last couple of months, sales have been running at the 5.0 million SAAR. In September, sales were at a 5.03 million SAAR, and October, sales were at a 4.97 million SAAR. The Pending Home Sales index suggests sales are still running at around 5 million.

Existing Home Sales and Inventory The second graph shows sales as a percent of total owner occupied units. This is a measure of turnover of existing homes.

It appears sales in 2007 will come in at about 7.5% of owner occupied units, well above the long term median of 6%. If sales fall to 5.0 million in '08, that will still be about 6.7% of Owner Occupied units - still above the median level.

If sales fall back to the median level, sales will be around 4.6 million n 2008. Note also that usually sales fall below the median level during a housing slowdown.

Based on slowing turnover rate and tighter lending standards, we can probably already say the NAR forecast of 5.7 million units in '08 is way too high. I will have a forecast soon, but sales below 5 million units in '08 is very likely.