Good News: Home Inventories Falling

HOUSING WIRE--In perhaps a bit of good news, sales of existing homes increased in February, trumping most analysts’ forecasts. The National Association of Realtors reported today that existing home sales surprisingly rose 2.9% to a seasonally-adjusted 5.03 million unit rate last month, up from a 4.89 pace in January — soundly beating some pretty glum analyst forecasts.

Total housing inventory fell 3.0% at the end of February to 4.03 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.2-month supply in January. Most housing experts look at inventory in assessing the overall health of the housing market, particularly in times of market stress.

According to Brian Wesbury and Bob Stein at First Trust Portfolios, "The best news in today’s report is that the inventory of existing homes is declining."

Comment: After rising for nine consecutive months in 2007, the important variable "months supply of houses at the current sales rate" has declined in three out of the last four months (see chart above), suggesting an improvement in the balance between homes available for sale and buyers in the market for homes.

Comments

[Analytica:]

The data may be skewed since (a) homeowners may be choosing not to list their house for sale due to market and financing difficulties (b) foreclosures in process and yet to be listed by banks.

Also, average national data is pretty meaningless given each large housing market is different in terms of the inventory overhang.

2008 Mar 25 09:42 AM

[GaryD:]

Relying on massaged data from NAR to make conclusions about the market is a great form of analysis. Thanks.

2008 Mar 25 11:01 AM

[Julie:]

Given that the fall/winter months are typically when we see inventory decline before a huge jump in the spring, it's too early to see any trend here. As a broker, I certainly hope you're right. I'm just not ready to jump to any conclusion with the data we've got right now.

2008 Mar 25 02:15 PM

[User 108593:]

40% of the increase in home sales came from foreclosures....how is that good news???

2008 Mar 26 04:39 AM