by Calculated Risk on 7/23/2009 10:59:00 AM

Here is another graph of inventory. This shows inventory by month starting in 2004.

Inventory in June 2009 was below the levels in June 2007 and June 2008 (this is the 5th consecutive month with inventory levels below 2 years ago) and almost down to the levels of June 2006.

It is important to watch inventory levels very carefully. If you look at the 2005 inventory data, instead of staying flat for most of the year (like the previous bubble years), inventory continued to increase all year. That was one of the key signs that led me to call the top in the housing market!

Note: there is probably a substantial shadow inventory – homeowners wanting to sell, but waiting for a better market - so existing home inventory levels will probably stay elevated for some time. There are also reports of REOs being held off the market, so inventory is probably under reported.

The second graph shows the year-over-year change in existing home inventory.

Prices will probably continue to fall until the months of supply reaches more normal levels (closer to 6 months compared to the current 9.4 months), and that will take some time.

However this trend of declining year-over-year inventory levels is a positive for the housing market (while remembering the shadow inventory)

by Calculated Risk on 7/23/2009 10:00:00 AM

The NAR reports: Existing-Home Sales Up Again

Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 3.6 percent to a seasonally adjusted annual rate of 4.89 million units in June from a downwardly revised pace of 4.72 million in May, but are 0.2 percent lower than the 4.90 million-unit level in June 2008.
...
Total housing inventory at the end of June fell 0.7 percent to 3.82 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, down from a 9.8-month supply in May.

Click on graph for larger image in new window.

The first graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in June 2009 (4.89 million SAAR) were 3.6% higher than last month, and were 0.2% lower than June 2008 (4.90 million SAAR).

Here is another way to look at existing homes sales: Monthly, Not Seasonally Adjusted (NSA):

This graph shows NSA monthly existing home sales for 2005 through 2009. For the first time in several years, sales (NSA) were slightly higher in June 2009 than in June 2008.

It's important to note that the NAR says about one-third of these sales were foreclosure resales or short sales. Although these are real transactions, this means activity (ex-distressed sales) is much lower.

The third graph shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 3.82 million in June. The all time record was 4.57 million homes for sale in July 2008. This is not seasonally adjusted.

Typically inventory increases in June, and peaks in July or August. This decrease in inventory was a little unusual.

Also, many REOs (bank owned properties) are included in the inventory because they are listed - but not all. Recently there have been stories about a substantial number of unlisted REOs and other shadow inventory - so this inventory number is probably low.

The fourth graph shows the 'months of supply' metric for the last six years.

Months of supply declined to 9.4 months.

Sales increased slightly, and inventory decreased, so "months of supply" decreased. A normal market has under 6 months of supply, so this is still very high.

I'll have more soon ...

Note: New Home sales will be released on Monday.

by Calculated Risk on 7/23/2009 09:00:00 AM

UPS CEO opening comments on conference call:

“On our last call we told you economic conditions for the second quarter would be slightly worse than the first and UPS performance would reflect those conditions. And that's what happened. The results we announced today are a clear indication of the tough economic environment. As you're aware, the rates of decline of some key economic indicators, like GDP and industrial production, have slowed. Other indicators, like manufacturing and service sector indices, are exhibiting signs of improvement. Most forecasters are saying that we may be at the bottom. Whether or not we're at the bottom is not the main issue; what is important is how long we remain here and what type of recovery we will have. Remember, all these indicators are still well into negative territory, illustrating the challenges that lie ahead. We will continue to manage the Company under the assumption that the economy will stay at this level until definitive signs of improvement materialize.

UPS executives went on to say (paraphrasing) that 1) trends in July have shown no improvement to date, 2) don’t have any confidence that trends or volumes will improve materially in Q3, 3) economy sitting here at this bottom.

by Calculated Risk on 7/23/2009 08:30:00 AM

NOTE: The seasonally adjusted weekly claims numbers is being impacted by the layoffs in the automobile industry. Usually auto companies cut back production in the summer, and the numbers are adjusted for that pattern - but this year the companies cut back much earlier. This distortion appears much smaller this week, and is expected to be over soon.

The DOL reports on weekly unemployment insurance claims:

In the week ending July 18, the advance figure for seasonally adjusted initial claims was 554,000, an increase of 30,000 from the previous week's revised figure of 524,000. The 4-week moving average was 566,000, a decrease of 19,000 from the previous week's revised average of 585,000.
...
The advance number for seasonally adjusted insured unemployment during the week ending July 11 was 6,225,000, a decrease of 88,000 from the preceding week's revised level of 6,313,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 19,000, and is now 93,250 below the peak of 15 weeks ago. It appears that initial weekly claims have peaked for this cycle.

The level of initial claims has fallen quickly - but is still very high (over 550K), indicating significant weakness in the job market.

Following the earlier recessions (like '81), weekly claims fell quickly, but in the two most recent recessions, weekly claims declined a little and then stayed elevated for some time. I expect weekly claims to stay elevated following the current recession too.

by Calculated Risk on 7/22/2009 11:59:00 PM

Note: Thomas Lawler is a former Fannie Mae and Wall Street economist who now writes a newsletter. He did an excellent job calling the housing bubble and bust, and I've quoted him a few times over the years.

From James Hagerty at the WSJ: As Housing Loses its Stickiness, Prices Reach Bottom Quicker

Tom Lawler has a new concept. He calls it the “de-stickification” of house prices.

Though Mr. Lawler was among the more bearish of housing economists when the market was still bubbling, he recently has been arguing that prices for low- and mid-range homes are stabilizing in many parts of the country ...

Part of the bear case involves the historical observation that it takes many years for house prices to bottom out because they are “sticky,” or slow to adjust downward even when supply surges and demand evaporates. In the past, home prices adjusted slowly in such circumstances because homeowners are stubborn and often don’t need to sell immediately. When Los Angeles had a housing slump in the early 1990s, caused in part by a plunge in aerospace-related employment, the Case-Shiller price index for the city started falling gradually in early 1990 and didn’t hit bottom until 1996.

This time around, Mr. Lawler argues, things are happening a lot faster. That’s partly because banks are dealing with a foreclosure rate not seen at least since the Great Depression. ...

That has forced prices down much more quickly than would have been expected in some of the milder down cycles of the past, Mr. Lawler says. ...

Not that Mr. Lawler sees another housing boom around the corner.

Once again house prices were sticky. Even in the low priced areas with significant foreclosure activity, prices have fallen for several years. The question is how sticky?

What Lawler is apparently suggesting is that significant foreclosure activity makes prices less sticky in for "low- and mid-range" priced homes - I agree - and I've argued before that some low priced areas could be near the price bottom.

The dynamics will probably be different in the mid-to-high priced areas. With few move-up buyers, I expect prices to fall for some time in the mid-to-high priced range bubble areas (especially in real terms). Of course foreclosure activity is picking up in the high priced areas - see DataQuick's report today - but I think it will still take some time for prices to fall to the market clearing price.