Saturday, 24 May 2008

Housing Inventory Continues to Climb

The consistent call from the housing bottom callers has been that as prices come down, buyers will be attracted back into the market, sales will stabilize and inventories would begin to be cleared. However, as evidenced by yesterday's existing home sales report in the US, that is simply not happening. From the NAR:

Total housing inventory at the end of April rose 10.5 percent to 4.55 million existing homes available for sale, which represents an 11.2-month supply at the current sales pace, up from a 10.0-month supply in March.
To put that inventory number in perspective, take a look at the inventory chart below from courtesy of calculated

Inventories have not been this high since the nasty recession of 1982. The bottom-callers continue to be wrong and will continue to be wrong for a couple of very simple reasons.Prices will continue to fall, lending restrictions, despite what the NAR says, will remain tight and the mass of foreclosures which continues to rise, will force yet more inventory onto the market.

Meanwhile OFHEO is confirming what we already knew from the Case-Shiller indices, that home price delines accelerated in 1Q08.


U.S. home prices fell in the first quarter of 2008 according to OFHEO’s seasonally-adjusted purchase-only house price index. The index, which is based on data from home sales, was 1.7 percent lower on a seasonally-adjusted basis in the first quarter than in the fourth quarter of 2007. This decline exceeded the 1.4 percent price decline between the third and fourth quarters of 2007 and is the largest quarterly price decline on record. Over the past year, prices fell 3.1 percent between the first quarter of 2007 and the first quarter of 2008. This is the largest decline in the purchase only index’s 17-year history.

Meanwhile, Alt-A which represents the bulk of the next nasty wave of US mortgage delinquiencies are rising rapidly. From Reuters:

Subprime, Alt-A mortgage delinquencies rising: S&P

Delinquencies for Alt-A mortgages rated between 2005 and 2007 are climbing, with total delinquencies rising as high as 17 percent in some cases, more than 6 percentage points higher than previous estimates, the ratings agency said in a report.Lower-quality subprime mortgage delinquencies soared as high as 37 percent for mortgages originated in 2006, 4 percentage points higher than previous estimates, S&P said.Subprime mortgages originated in 2007 saw delinquencies climb to almost 26 percent, 6 percentage points higher.

Of course, sooner or later the bottom callers will be right, but I doubt that will be anytime soon given the current state of affairs.