Unless inventories grow, demand for housing will keep the pressure on prices

Did You Know: Inventories are declining at a slower pace, but unless inventories grow, demand for housing will keep the pressure on prices and the balance of the market in favor of sellers.

• Comparing the total number of homes available for sale in April 2013 to one year ago, we see that inventories in April are nearly 14 percent lower than they were one year ago. In the chart, we see that the decline has abated but not stopped; a 14 percent decline is an improvement over 20+ percent, but inventories remain scarce.
  
• While inventory has continued to decline, sales have been increasing robustly. The year over year change in existing home sales has seen double-digit or near-double-digit gains for 10 consecutive months [1].
• Sales are not exactly the same thing as “demand” because they require a supplier, but in the case of housing, we often compare listings for sale against the sales pace to find months supply—a rough indicator of the balance of supply and demand in the housing market.
• After peaking at nearly 12 months in July 2010, the supply of existing homes for sale has declined precipitously to right around 5 months. The headline index which compares non-seasonally adjusted inventories against the seasonally adjusted sales rate has shown a slight bounce off of the low of 4.3 months supply in January, while the figure comparing seasonally adjusted inventories with seasonally adjusted sales has showed relative stability around 5 months supply recently.
• Both measures show that the balance is now strongly in favor of sellers. Without new inventory from construction or investor sale of properties, expect continued strong price growth. Even if prices stabilize at current levels, year over year price growth will be in the months ahead would average 6%.

[1] “Near double-digit” means within a rounding error of double digits. The lowest year over year gain in that time period was 9.5%.