by Calculated Risk on 1/26/2009 03:10:00 PM

Here are some posts this morning on existing home sales: Existing Home Sales Increase in December and Existing Home Sales (NSA)

Before revisions, there were 4.91 million existing home sales in 2008. This is the lowest level since 1997 (4.37 million).

Click on graph for larger image in new window.

This graph shows annual existing home sales (since 1969) and year end inventory (since 1982).

This shows sales are the lowest level since 1997, and inventory is just below the year end record set in 2007.

However this has been an above normal year for transactions based on the turnover rate. This is probably worth repeating: Long term real estate agents have told me this has been a decent year for volume, although many of the sales are "one and done". Usually real estate sales are like a chain reaction - one family both sells and buys, and the seller then goes out and buys ... and on and on. But with so many REO (Lender "Real Estate Owned") sales by banks, agents have told me they frequently just have the one sale, and there is no move-up buyer - no chain reaction.

The second graph shows sales and inventory as a percent of Owner Occupied Units (a measure of turnover).

By this measure sales are still above the normal range of about 6% per year. Inventory is above the usual range too. I've been expecting turnover to decline to the 5% to 6% per year range, and stay there for an extended period. With 76 million owner occupied households, this suggested that existing home sales would decline to the 3.8 to 4.5 million range. So I think sales will fall futher in coming years.

Here are some comments I wrote last year that I think are still correct:

The turnover rate was boosted in recent years by:

Speculative buying (flippers).

Speculative buying by first time home buyers (using excessive leverage).

Move up buying, especially by Baby Boomers.

and recently by investors / first time buyers buying REOs.

The turnover rate is still above the median for the last 40 years and substantially above previous troughs. Both types of speculative buying is now over. And the Baby Boomers have probably bought move up homes, and the next major move will be downsizing in retirement (still a number of years away). And although REO sales will continue to be significant in 2009, they will probably slow some as foreclosures move up the price range.

And finally - and probably a very important point - homeowners with negative equity, who manage to avoid foreclosure, will be stuck in their homes for years. This suggests the turnover rate - and existing home sales - will decline further.