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House Prices and Inventory

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by Calculated Risk on 7/27/2021 02:18:00 PM

Watching existing home “for sale” inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases.

In 2020, with the pandemic, inventory dropped to record lows, and prices really increased (record low mortgage rates and demographics were factors too).

I don’t have a crystal ball, but watching inventory helps understand the housing market.

Click on graph for larger image.

This graph below shows existing home months-of-supply (inverted, from the NAR) vs. the seasonally adjusted month-to-month price change in the Case-Shiller National Index (both since January 1999 through May 2021).

There is a clear relationship, and this is no surprise (but interesting to graph). If months-of-supply is high, prices decline. If months-of-supply is very low (like now), prices rise quickly.
In May, the months-of-supply was at 2.5 months, and the Case-Shiller National Index (SA) increased 1.7% month-over-month (a month-over-month record). The black arrow points to the May dot.

In the June existing home sales report released last week, the NAR reported months-of-supply increased to 2.6 month in June. There is a seasonal pattern to inventory, but this is still very low – and prices are increasing sharply.

Real House Prices and Price-to-Rent Ratio in April

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