by Calculated Risk on 6/21/2012 12:00:00 PM

The NAR reported inventory decreased to 2.49 million units in May, down 0.4% from the downwardly revised 2.50 million in April (revised down from 2.54 million). This is down 20.4% from May 2011, and down 2.6% from the inventory level in May 2005 (mid-2005 was when inventory started increasing sharply).

It is very likely that inventory will be below the comparable month in 2005 for the rest of the year. It is even possible that inventory has peaked for 2012 (or is at least very close to the peak).

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.

The following 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.

Click on graph for larger image.

This year (dark red for 2012) inventory is at the lowest level for the month of May since 2004, and inventory is below the level in May 2005 (not counting contingent sales). However inventory is still elevated using months-of-supply.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA (red column) are above the sales for the 2008, 2009 and 2011 (2010 was slightly higher because of the tax credit). Sales are well below the bubble years of 2005 and 2006.

Also it appears distressed sales were down in May. From the NAR:

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 25 percent of May sales (15 percent were foreclosures and 10 percent were short sales), down from 28 percent in April and 31 percent in May 2011.

This suggests non-distressed sales increased in May, and that is a positive sign for the housing market.

Earlier:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales graphs