Lowest Inventory in Six Years

The total homes listed for sale continue to move downward. The latest decline in October to 3.33 million was partly seasonal, as autumn and winter months nearly always have fewer listings in comparison with spring and summer months. Still, examining listings only in the month of October (so as to get an apple-to-apple comparison), this year saw the lowest inventory since 2005.

A review of June, July, August, and September data also says the same thing: namely, 2011 had the lowest inventory count since 2005 across same-month comparisons. The market is clearly healing and the falling inventory is an early indicator as to what will happen to home prices in the future.

Despite the improving inventory trend,  let’s be mindful that the current inventory conditions are still considered elevated and above normal compared to the early years of the last decade. Also the months-supply – i.e., how many months it would take to exhaust the current inventory assuming the current sales pace – stood at 8 months in October, which is still a tad above normal conditions. Ideally, the months-supply figure needs to fall to about 6 months before prices show consistent positive movement of about 3 to 5 percent annually.

Separately, the inventory of newly constructed homes (not existing home inventory) is at 40 year lows because homebuilders have just not been able to break ground and build new homes because of very difficult lending conditions in obtaining construction loans. The inventory trends for both existing and new homes should therefore provide some reassurance that home price growth (at the national level) could be just around the corner. Local markets in Bismarck, Buffalo, Pittsburgh, San Diego, and Washington, D.C., as some examples, have already shown consistent price gains.

Source – National Association of Realtors – Economic Outlook 11-12-2011

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