by Calculated Risk on 2/26/2008 12:18:00 AM

The following graph shows the seasonal pattern for existing home inventory. Each year is normalized to 100 at the ending level of the prior year.

The dashed lines are the final boom years (2002, 2003, and 2004) and the solid lines are the bust years (2005, 2006, 2007, and 2008 through January in red).

Actually 2005 was a transition year from boom to bust. The inventory pattern started out looking like a boom year, but then inventory kept building all year; the first clear signal that the housing bubble was over.

Click on graph for larger image.

During the first few months of each year, there is little difference between the boom and bust seasonal patterns. The main difference happens in the summer when the inventory just keeps building during a housing bust.

For 2008, inventory has already increased 5.4% from the 2007 year end level. Another 10% increase (to the 115 line on the graph) and the inventory will be at a record all time level (the record is 4.561 million in July 2007).

If the inventory increases 25% from year end (at the low end of the housing bust years), then inventory would reach 5 million units, and that would put the "months of sales" over 12 months, at the current sales pace. I expect Months of Supply to be over 12 soon, possibly as early as May or June.