by Calculated Risk on 7/25/2007 12:05:00 PM

For more existing home sales graphs, please see the previous post: June Existing Home Sales

To put the NAR numbers into perspective, here are the year-end sales, inventory and months of supply numbers, since 1969.

Click on graph for larger image.

This graph shows the actual annual sales, year end inventory and months of supply, since 1982 (sales since 1969). For 2007, the June inventory and Seasonally Adjusted Annual Rate (SAAR) for sales were used.

The current inventory of 4.196 million is below the all time record 4.431 million units set last month. However, since sales have continued to fall, the "months of supply" metric remained at the same level: 8.8 months. The "months of supply" is now above the level of the previous housing slump in the early '90s, but still below the levels of the housing bust in the early '80s.

The "months of supply" is calculated by dividing the total inventory by the seasonally adjusted annual rate (SAAR) of sales, and multiplying by 12. Currently inventory is 4.196 million, SAAR sales are 5.75 million giving 8.8 months of supply.

Both the numerator and the denominator are generally moving in the wrong direction (although inventory declined in June). Not only is inventory near record levels, but sales - though falling - are still significantly above the normal range as a percent of owner occupied units.

Forecasts

The followings shows the actual cumulative existing home sales (through June) vs. three annual forecasts for 2007 (NAR's Lereah, Fannie Mae's Berson, and me). Note: Several people have asked me to add their forecasts to this graph, instead I think I'll have a contest to predict the total existing home sales for 2007.

My forecast was for sales to be between 5.6 and 5.8 million units (shown as 5.7 million).

NSA sales are 2.929 million units through June. In a typical year, sales through June are about half the sales for the year. So at the current pace, sales will be around 5.86 million. It appears that sales will slow, perhaps significantly, in the second half of 2007, so the risk to my forecast is most likely on the downside.

To reach the NAR forecast, revised downward on July 11 to 6.11 million units, sales would have to be above the 2006 levels for the remainder of the year. Given tighter lending standards, we can probably already say the July NAR forecast was too optimistic.