The National Association of Realtors reported that existing home sales increased to 4.42 million in November from 4.25 million in October. Downward revisions to previously reported sales data for the last five years were also released:
Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above the 3.94 million-unit pace in November 2010.
Also released today are benchmark revisions to historic existing-home sales. The 2010 benchmark shows there were 4,190,000 existing-home sales last year, a 14.6 percent revision from the previously projected 4,908,000 sales. For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.
As shown on the following graph from Calculated Risk, the downward revisions were significant, although the NAR characterized the shift as merely “drift.”
Existing home inventory declined to 2.58 million in November, the lowest level since 2005, and the months of supply metric decreased to 7.0.
The persistent downtrend in supply that began in 2007 indicates that the speculative excesses introduced during the building frenzy of the bubble years are gradually being integrated into the residential real estate market. However, CoreLogic reports that shadow inventory remains at an extremely elevated level:
CoreLogic reported today that the current residential shadow inventory as of October 2011 remained at 1.6 million units, representing a supply of 5 months. This was down from October 2010, when shadow inventory stood at 1.9 million units, or 7 months’ supply, but approximately the same level as reported in July 2011. Currently, the flow of new seriously delinquent loans into the shadow inventory has been offset by the roughly equal flow of distressed (short and real estate owned) sales.
“The shadow inventory overhang is a large impediment to the improvement in the housing market because it puts downward pressure on home prices, which hurts home sales and building activity while encouraging strategic defaults,” said Mark Fleming, chief economist for CoreLogic.
As always, it is important to keep the big picture in mind when analyzing data trends. The residential real estate bubble that imploded last decade was the largest, by far, in US history as shown on the following graph from HousingStory.net.
In general, the larger the bubble, the longer it takes a given market to restore balance between supply and demand. Therefore, while the sales and inventory trends indicate that the housing market is making progress, the recovery will continue to occur at a gradual pace. Although the majority of the price declines are behind us, it will likely take several more years for the next structural bottom in home values to form.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.