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Thursday, December 27, 2018

Question #10 for 2019: Will housing inventory increase or decrease in 2019?

by Calculated Risk on 12/27/2018 12:50:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2019. I'm adding some thoughts, and maybe some predictions for each question.

10) Housing Inventory: Housing inventory increased in 2018 from very low levels.  Will inventory increase or decrease in 2019?

Tracking housing inventory is very helpful in understanding the housing market.  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 red arrow on first graph below) helped me call the top for house prices in 2006.

This graph shows nationwide inventory for existing homes through November 2018.

Existing Home Inventory NSAClick on graph for larger image.

According to the NAR, inventory decreased seasonally to 1.74 million in November from 1.85 million in October. However inventory in November was up from 1.67 million in November 2017.

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.

Note that inventory is still 15% to 20% below the levels for November 2014 and 2015.

Year-over-year Inventory 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 4.2% year-over-year in November compared to November 2017. Months of supply was at 3.9 months in November.

This increase followed several years of declining year-over-year inventory (see blue line).

A year ago I wrote: "The recent change in the tax law might lead to more inventory in certain areas, and I'll be tracking that over the course of the year."  And sure enough, in certain areas, inventory was up significantly year-over-year (but still relatively low).   For example, inventory in California was up 31% year-over-year.   However months-of-supply in California only increased to 3.7 months from 2.9 months a year earlier.   This is still on the low side.

I expect to see inventory up again year-over-year in December 2019.   My reasons for expecting more inventory are 1) inventory is still historically low (inventory in November 2018 was  the second lowest since 2000), 2) higher mortgage rates, and 3) further negative impact in certain areas from new tax law.

If correct, this will keep house price increases down in  2019 (probably lower than the 5% or so gains in 2018).

Here are the Ten Economic Questions for 2019 and a few predictions:

Question #1 for 2019: Will Mr. Trump negatively impact the economy in 2019?
Question #2 for 2019: How much will the economy grow in 2019?
Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
Question #4 for 2019: What will the unemployment rate be in December 2019?
Question #5 for 2019: Will the core inflation rate rise in 2019? Will too much inflation be a concern in 2019?
Question #6 for 2019: Will the Fed raise rates in 2019, and if so, by how much?
Question #7 for 2019: How much will wages increase in 2019?
Question #8 for 2019: How much will Residential Investment increase?
Question #9 for 2019: What will happen with house prices in 2019?
Question #10 for 2019: Will housing inventory increase or decrease in 2019?