by Calculated Risk on 6/22/2010 07:28:00 PM

Earlier I posted a graph showing the relationship of existing home months-of-supply to house prices. When months-of-supply is below 6 months, house prices are typically rising - and above 6 months-of-supply, house prices are usually falling (this isn't perfect, but it is a general guide).

So how high will months-of-supply rise this summer?

Here are some estimates of sales via James Haggerty at the WSJ: Outlook for Home Prices Grows Darker

Since April 30, new purchase contracts have plunged ... Lawrence Yun, chief economist for the Realtors, estimated that contracts signed in May were 10% to 15% below the weak level of a year earlier.

Ronald Peltier, chief executive officer of HomeServices of America Inc., which owns real estate brokers in 21 states, said new home-purchase contracts in May and June so far are down about 20% from a year earlier.

Contracts signed in May and June lead to sales later in the summer (counted when escrow closes).

Sales in July 2009 were at a 5.14 million rate (SAAR). Usually inventory increases in July, but if we assume inventory is steady at 3.892 million, the following table shows the month-of-supply estimates based on three year-over-year declines sales in July 2009:

Sales Decline from 2009	July Sales Rate (millions)	Months-of-Supply
Off 10%	4.63	10.1
Off 15%	4.37	10.7
Off 20%	4.11	11.4

The peak for months-of-supply was 11.2 months in 2008. And house prices? The Case-Shiller composite 20 index fell 17.2% in 2008.

We are much closer to the price bottom now than in 2008, and I don't expect that severe of a price decline. But I do expect house prices to fall in the 2nd half of 2010 and into 2011 - probably another 5% to 10% for the major house price indexes (Case-Shiller and CoreLogic).

Of course inventory could decline or sales increase a little ... and maybe months-of-supply will only be close to double digits.

by Calculated Risk on 6/22/2010 04:03:00 PM

Here is an interactive market graph from Doug Short of dshort.com (financial planner).

Click on graph for interactive version in new window.

The graph has tabs to look at the different bear markets - "now" shows the current market - and there is also a tab for the "four bears".

Tomorrow the Census Bureau will release New Home sales for May (consensus is for around 400,000) and the FOMC statement will be released.

Tom Lawler called the existing home sales number correctly today (he constructed an estimate from local data), and he is taking the under on new home sales too. See: Lawler: Home Sales in May: A Look at the Data.

On Sunday I posted a preview of the FOMC statement: Look Ahead to FOMC Statement on Wednesday. The statement will be a little less upbeat.

And on existing home sales today (with graphs):

Existing Home Sales decline in May

Existing Home Sales: Inventory increases Year-over-Year

Existing Homes: Months of Supply and House Prices

by Calculated Risk on 6/22/2010 02:34:00 PM

Earlier I mentioned that a normal housing market usually has under 6 months of supply. The current 8.3 months of supply is significantly above normal, and is especially concerning because the reported inventory is already historically very high.

After the tax credit related activity ends, the months of supply will probably increase, and the ratio could be close to double digits later this year. That level of supply will put additional downward pressure on house prices.

Click on graph for larger image in new window.

This graph show months of supply and the annualized change in the Case-Shiller Composite 20 house price index (inverted).

Below 6 months of supply (blue line) house prices are typically rising (red line, inverted).

Above 6 months of supply house prices are usually falling (although there were many programs to support house prices over the last year).

Later this year the months of supply will probably increase, and I expect house prices to fall further as measured by the Case-Shiller and CoreLogic repeat sales house price indexes.

by Calculated Risk on 6/22/2010 11:28:00 AM

Earlier the NAR released the existing home sales data for May; here are a couple more graphs ...

The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Click on graph for larger image in new window.

Inventory increased 1.1% YoY in May. This is the second consecutive month of a year-over-year increases in inventory. Although the YoY increase is small, I expect it will be higher later this year.

This increase in inventory is especially concerning because the reported inventory is already historically very high, and the 8.3 months of supply in May is well above normal. The months of supply will probably stay near this level in June, because of more tax credit related sales (reported at closing), but the months-of-supply could be close to double digits later this year.

And a double digit months-of-supply would be a really bad sign for house prices ...

The second graph shows NSA monthly existing home sales for 2005 through 2010 (see Red columns for 2010).

Sales (NSA) in May 2010 were 17.7% higher than in May 2009, and also higher than in May 2008.

We will probably see sales at around this level in June because of the tax credit, however I expect to see existing home sales below last year in the 2nd half of this year.

This was definitely a weak report. Sales were up year-over-year because of the tax credit pulling sales forward, but that does very little for the economy. The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices.

by Calculated Risk on 6/22/2010 10:00:00 AM

The NAR reports: May Shows a Continued Strong Pace for Existing-Home Sales

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2 percent from an upwardly revised surge of 5.79 million units in April. May closings are 19.2 percent above the 4.75 million-unit level in May 2009; April sales were revised to show an 8.0 percent monthly gain.
...
Total housing inventory at the end of May fell 3.4 percent to 3.89 million existing homes available for sale, which represents an 8.3-month supply at the current sales pace, compared with an 8.4-month supply in April. Raw unsold inventory is 1.1 percent above a year ago, but is still 14.9 percent below the record of 4.58 million in July 2008.

Click on graph for larger image in new window.

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

Sales in May 2010 (5.66 million SAAR) were 2.2% lower than last month, and were 19.2% higher than May 2009 (4.75 million SAAR).

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 3.89 million in May from 4.04 million in April. The all time record high was 4.58 million homes for sale in July 2008.

Inventory is not seasonally adjusted and there is a clear seasonal pattern with inventory increasing in the spring and into the summer. The increase in April 2010 was partially related to sellers hoping to take advantage of the housing tax credit, and a decline in May was expected (I'll have more on inventory later).

The last graph shows the 'months of supply' metric.

Months of supply decreased slightly to 8.3 months in May. A normal market has under 6 months of supply, so this is high - and probably excludes some substantial shadow inventory. And the months of supply will probably increase sharply this summer as sales fade.

This was a very weak report - as anticpated by Tom Lawler yesterday (see Lawler: Home Sales in May: A Look at the Data ). I'll have more ...