by Calculated Risk on 2/23/2011 11:30:00 AM

Earlier the NAR released the existing home sales data for January; here are a couple more graphs ...

The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

IMPORTANT: On a seasonal basis, inventory usually bottoms in December and January, and then will start increasing again in February and March. Since the NAR "months-of-supply" metric uses Seasonally Adjusted (SA) sales, but Not Seasonally Adjusted (NSA) inventory, this seasonal decline in inventory leads to a lower "months-of-supply" in December and January.

The key is to recognize the seasonal pattern, and watch the YoY change in inventory.

Click on graph for larger image in graph gallery.

Although inventory decreased from December to January, inventory increased 3.1% YoY in January. This is the sixth consecutive month of year-over-year increases in inventory, although the increase in January was lower than the previous months. But any increase is bad news with the high level of inventory.

Inventory should increase in February and March, and this is something to watch closely over the next few months.

By request - the second graph shows existing home sales Not Seasonally Adjusted (NSA).

The red column in January is for 2011.

Sales NSA were about the same level as the last three years. January is usually the weakest month of the year for existing home sales (followed by February). The real key is what happens in the spring and summer.

The bottom line: Sales increased slightly in January (using the old method to estimate sales), apparently due to an increase in investor purchases of distressed properties at the low end. The NAR noted "Investors accounted for 23 percent of purchases in January, up from 20 percent in December and 17 percent in January 2010 ... Distressed homes edged up to a 37 percent market share in January from 36 percent in December"

Inventory remains very high, and the year-over-year increase in inventory is very concerning.