Housing inventories

Existing home inventories and median sales prices, 2003-2006

The NAR released existing-home sales data for October today. Here is a quick-and-dirty chart of prices and inventories using their numbers. While I much prefer deflating the OFHEO's repeat-sales house price index by CPI ex-shelter to gauge real price changes, that series is released quarterly, and 06Q3 numbers do not come out until Friday. These data will do for now.

Sales of previously owned houses in the U.S. unexpectedly rose in October for the first time in eight months as lower prices and borrowing costs brought more buyers into the market.

Purchases increased 0.5 percent in October to an annual rate of 6.24 million, the National Association of Realtors said today in Washington. The median selling price fell 3.5 percent from October 2005, the biggest year-over-year decline on record.

Bob Willis, U.S. Home Resales Rose 0.5% to 6.24 Million Rate
Bloomberg 28. Nov. 2006

Despite the "biggest year-over-year decline on record" in median sales price, a quick scan of inventories indicates the bottom may not be in. The housing market is considered vulnerable when inventories reach six to nine months, and in trouble if they exceed nine. Given the data on for-sale vacancies are at forty-year highs, a continued assessment of "vulnerable" would appear justified. For-sale-only vacancies are around 2.5% of owner-occupied housing. Until recently, the prior peak was ~2.0% in 1989Q3, an extremely vulnerable moment for housing prices.

Sales of existing homes held steady with a modest gain last month, another indicator that the housing market is transitioning into a more normal market in contrast with unsustainable activity last year..

Existing Home Sales Rise in October, Market Stabilizing
National Association of Realtors 28. Nov. 2006

If you ask realtors, of course, "the bottom is in."

FD: short homebuilders


Update 10:45 PST

Bernanke weighs in. Behind the usual Fedspeak, his mostly is a measured and reasonable take. Here I excerpt his discussion of housing inventories, homebuilding and production. Click through for the whole thing.

Notwithstanding the sharp reduction in starts of new single-family houses, inventories of both new and existing homes for sale have increased markedly this year. For example, according to the most recent data, homebuilders currently have about 550,000 new homes for sale, roughly half again the number that has been typical during the past decade. Moreover, the official statistics likely understate the full extent of the inventory buildup, as many homebuilders have reported a sharp increase this year in the number of buyers canceling signed contracts. A home for which the sales contract is cancelled becomes available for sale once again but is not included in the official data on the inventory of unsold new homes. To reduce this inventory overhang, builders are likely to continue to limit the number of new homes under construction.

Although residential construction continues to sag, some indications suggest that the rate of home purchase may be stabilizing, perhaps in response to modest declines in mortgage interest rates over the past few months and lower prices in some markets. Sales of new homes ticked up in August and increased a bit further in September. The University of Michigan's survey of consumers shows an increase in the share of respondents who believe that now is a good time to buy a home, from 57 percent in September to 67 percent in November. Meanwhile, an index of applications for mortgages for home purchases has been trending up since July. Although these developments are encouraging, we should keep in mind that even if demand stabilizes in its current range, reducing the inventory of unsold homes to more normal levels will likely involve further adjustments in production. The slowing pace of residential construction is likely to be a drag on economic growth into next year.

Ben S. Bernanke, The Economic Outlook
Federal Reserve Board 28. Nov. 2006