by Calculated Risk on 12/26/2013 11:38:00 AM
Thursday, December 26, 2013
Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.
Here is a review of the Ten Economic Questions for 2013.
9) Housing Inventory: It appears housing inventory bottomed in early 2013. Will inventory increase in 2014, and, if so, by how much?
Tracking housing inventory is very helpful. The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here). And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.
Now an increase in inventory would probably mean smaller price increases in 2014.
This graph shows nationwide inventory for existing homes through November 2013.
Click on graph for larger image.
According to the NAR, inventory declined to 2.09 million in November from 2.11 million in October. Inventory is up year-over-year from 1.99 million in November 2012.
Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory and this shows that inventory bottomed in January, and is now up about 8.4% from the bottom on a seasonally adjusted basis.
The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.
Inventory increased 5.0% year-over-year in November from November 2012 (blue line).
Months of supply increased to 5.1 months in November, up from 4.9 months in October, and up from 4.8 months in November 2012. Even with the increase, the current supply is still very low.
Whenever I talk with real estate agents, I ask why they think inventory is so low. Last year, a common answer was that people didn't want to sell at the bottom. In a market with falling prices, sellers rush to list their homes, and inventory increases. But if sellers think prices have bottomed, then they believe they can be patient, and inventory declines.
Now - a more common reason for low inventory - is that potential sellers can't find homes to buy (because inventory is so low). In this case, a little more inventory will lead to more inventory.
Another reason for low inventory is that many homeowners are still "underwater" on their mortgage and can't sell. This is less of a problem now than a year ago.
With the recent price increases, some potential sellers will probably come off the fence, and more of these formerly underwater homeowners will be able to sell.
Right now my guess is active inventory will increase 10% to 15% in 2014 (inventory will decline seasonally in December and January, but I expect to see inventory up 10% to 15% year-over-year toward the end of 2014). This will put active inventory close to 6 months supply this summer. If correct, this will slow house price increases in 2014.
Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks