by Calculated Risk on 1/24/2008 01:35:00 PM

For more existing home sales graphs, please see the earlier post: December Existing Home Sales

Last month I noted:

If inventory follows the normal pattern, we will probably see a decline to 3.7 million units or so in December (from 4.273 million units in November). This will bring out even more bottom callers, but it is just the normal seasonal pattern.

In fact, inventory levels only declined to 3.905 million units and the bottom callers were muted. The following graphs put this record inventory into perspective:

Click on graph for larger image.

The first graph shows annual existing home sales and year end inventory. As the NAR noted 2007 was the fifth highest sales year on record.

With falling sales, and an expected surge in inventory in the spring, it is very likely that inventory will be higher than sales at some point next year. That will put the "months of supply" number above 12. The last time that happened was in 1982.


The second graph shows the annual sales and year end inventory since 1982 (sales since 1969), normalized by the number of owner occupied units. This graph shows that year end inventory is at an all time record level by this key measure.

This also shows the annual variability in the turnover of existing homes, with a median of 6% of owner occupied units selling per year. Currently 6% of owner occupied units would be about 4.6 million existing home sales per year. This indicates that the turnover of existing homes - December sales were at a 4.89 million Seasonally Adjusted Annual Rate (SAAR) - is still above the historical median.

This suggests sales in 2008 will fall significantly from the 2007 level.