| Rising Inventories Are the Main Concern |
| Written by Jonathan Smoke | |
| 09.25.2007 | |
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Discuss this article on the forums. (0 posts) The National Association of Realtors reported the August existing home sales, inventories and median home prices today. The August numbers showed that total sales of existing homes fell 4.3% from July to a seasonally adjusted annual rate of 5.5 million. Total inventories of unsold homes on the market rose by 0.4% to 4.58 million, representing a 10-month supply at the August sales rate. The sales number isn’t so alarming when you look at the last decade. Like new homes, if we just erase from our memory the period of 2002-2006, the current sales volume seems tolerable if not “normal.” Businesses based on home sales who geared up for 2 million more sales a year should be scaling back to these lower levels if they haven’t already. What’s more troubling is the inventory number. As you can see from the chart, it is the highest it has been in this decade. NAR data and methods have changed over the years but the furthest back we can go for a comparable number does look at months’ supply of existing single family homes inventory. The current level of 9.8 months of supply is as high as it was in May 1989. That series started in 1989, so this is the highest level recorded and the volume of total inventory is clearly the highest recorded. I suppose we can take comfort in the recognition that not all of these homes are vacant, but reliable and deep monthly figures on vacant for sale homes are hard to come by. It’s also likely the surge in inventories this year were a result of investors attempting to unload their investments as well as households concerned about possible foreclosure attempting to sell before foreclosure proceedings begin. I have been told that listings can be a leading indicator of foreclosure risk. The median sales price is down 1.8% over July, but this sales price metric can be distorted based on shifts in the types and locations of homes being sold. S&P/Case-Shiller today also reported their July 2007 repeat sales price indices, which cover fewer markets but represent a more stable comparison. The 10 city composite was down slightly—only 0.61%—over June 07. So prices are remaining sticky and stubborn. Sales have definitely slowed but are within a normal territory. Inventories are the concern and the albatross that does not bode well for a positive 2008. I define a positive housing market as one with increases in sales, sales pace, and prices accompanied with stable or decreasing inventories. We’re months away from seeing a positive scenario. 
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