Housing Inventory: Blinking Bottom Indicator

The National Association of Realtors said Wednesday that sales of existing homes fell to their lowest level in almost 12 years. Prices also fell and are now near their six-year lows.

The trade group said that sales of already existing houses fell a bigger-than-expected 5.3% in January, but buried within that report was one bit of data that may indicate the death-spiral in the U.S. housing market is nearing a bottom.

The indicator: The supply of housing declined again in January, continuing a trend that started during the summer.

“We’ll have to see if that trend continues. Inventory is already down sharply in the new home market, and if the existing home market can follow suit, it will eventually help stabilize housing,” Mike Larson, an analyst at Weiss Research Inc., told the Dow Jones News Service.

The U.S. housing market will play a key role - if not the key role - in the country’s economic recovery. A house is typically the single-biggest investment that most consumers make, which is why a house is also the typical consumer’s single-biggest expense.

Bursting Bubble, Growing Trouble

A housing bubble - burst by the subprime mortgage crisis - shoved the U.S. into a recession, and helped drag other key world economies along with it.

For housing prices to stabilize, supply and demand have to reach a balance, or equilibrium point. Right now, there’s still an estimated oversupply of roughly 1 million houses on the market. But the supply of available houses has now declined for several consecutive months.

So when sales also stabilize, there will be fewer houses available to purchase, which will cause housing prices to solidify and hasten the pace of a turnaround in both the housing market, and the overall economy, analysts say.

The number of existing homes for sale on the market decreased to 3.6 million in January, down from 3.68 million in December. At the current sales rate, it will take an estimated 9.6 months to sell down 3.6 million homes, the NAR report said.

In January 2008, there were 3.54 million homes for sale. The inventory peak was reached in July of last year.

“The drop in total inventory is an encouraging sign because the number of homes on the market has declined steadily since peaking in July 2008, and inventory is at the lowest level in two years,” Lawrence Yun, the NAR’s chief economist, said in a statement.

Dan Greenhaus, an equity-strategy-group analyst with Miller Tabak & Co. LLC., said that the “supply [and] demand fundamentals are working themselves out.”

But that market equilibrium has yet to be reached and, until it does, expect existing home prices to continue their fall. The national median existing-home price was $170,300 in January, down nearly 15% from last year when the median price was $199,800.

Original post

Comments

[Mad Hedge F...:]

Here is a novel plan put forth by a hedge fund in Florida, Derivatives Bridge, LLC. Securities backing performing mortgages worth 100% are being sold for 20% because there is no market for these securities. Have the government buy these securities for 60%, rescuing the banks, and then sell them back to the original homeowner. The homeowner then is able to refinance his home, see his mortgage principal drop by 40%, restoring his net worth, and purchasing power. The cost to the taxpayer is zero. This is already possible in some countries like Denmark. If someone offered me a deal like this I’d take it in a heartbeat, even if I had to clean out the sofa cushions and raid my kids’ piggy banks. They say necessity is the mother of invention.

Feb 26 08:13 AM

[everyotherc...:]

Any analysis of housing inventories must take into consideration the "phantom" inventory of homes which discouraged would-be sellers to remove their homes from the market. That must be a huge number which analysts should attempt to quantify.

The other issue is the inventory of foreclosed homes in the hands of lenders who chose not to dump these on the market at this time because of the already bulging for-sale inventories.

Bottom line, I believe it's risky to place a lot of faith on minor improvements in existing formal inventory trends.

Feb 26 09:49 AM

[cadoggy:]

I wonder when we'll start seeing news articles about how the banks are colluding to lower inventory levels by keeping phantom inventory behind the curtain.

A lot of bloggers I've read seem to think that having inventory approach 'normal' is the first sign of the market bottoming out. The banks know this. And they don't have the resources to handle all their inventory. So why not hold onto these REOs a little longer and kill two birds with one stone?

Feb 26 06:34 PM

[EEB:]

I don't know if the banks are colluding as "cadoggy" proposes, but there is still a huge amount of oversupply of housing. I checked some Census Bureau statistics the other day, and roughly 15% of housing units in this country, including vacation homes, etc. are currently vacant. This is historically very high. Defining the inventory as houses up for sale is artificial and distorting.

I do agree with the author and others that the stock markets won't stabilize and eventually head higher until the slide in housing stops. Unfortunately, that slide is still accelerating. I really think that the federal government should attack the housing problem from the supply side by buying and holding (for years probably) a bunch of foreclosed houses. This seems like a better way to spend money right now than the countless proposals for loan modifications, etc.

Feb 26 08:18 PM

[Ken D:]

I hope this housing price collapse, when concluded in the next five years, will finally convince people that a house is a place to live and not an investment. Don't listen to all of the self-serving noise from the "Realtors." They will drive you right over the edge of the mountain and cash your insurance check.

Feb 27 05:19 PM

[thatguy57z:]

Well there's only one problem is that most bank's and mortgage companies had stop foreclosure until the government came up with some help, well it's not there, that's some think the bottom is here. Well think again its going to hit so hard in a few days because the foreclosure is going to go trough the roof. Now your going to see the commercial bubble burst because loans are coming due, and if you look around and see all the new building empty, who's going to pay for all that empty space, you and me, because there going to have to bailout the banks aging. Where headed for the worst collapse then the 30's and its just around the Conner, If your going to survive you better start paying cash for everything don't put anything in the banks because when the door is closed they got your money and the government is out for themselves


On Feb 26 08:13 AM The Mad Hedge Fund Trader wrote:

> Here is a novel plan put forth by a hedge fund in Florida, Derivatives
> Bridge, LLC. Securities backing performing mortgages worth 100% are
> being sold for 20% because there is no market for these securities.
> Have the government buy these securities for 60%, rescuing the banks,
> and then sell them back to the original homeowner. The homeowner
> then is able to refinance his home, see his mortgage principal drop
> by 40%, restoring his net worth, and purchasing power. The cost to
> the taxpayer is zero. This is already possible in some countries
> like Denmark. If someone offered me a deal like this I’d take it
> in a heartbeat, even if I had to clean out the sofa cushions and
> raid my kids’ piggy banks. They say necessity is the mother of invention.

Feb 27 10:32 PM