by Calculated Risk on 1/23/2014 12:04:00 PM

The key story in the NAR release this morning was that inventory was only up 1.6% year-over-year in December. The year-over-year inventory increase for November was revised down to 3.0% (from 5.0%).

A few points:
• The NAR inventory data is "noisy" (and difficult to forecast based on other data).
• The headline NAR inventory number is NOT seasonally adjusted (and there is a clear seasonal pattern).
• On a seasonally adjusted basis, inventory was down in December from November, but up 4.3% from the low in January 2013 (see first graph below).
• Inventory is still very low, and with the low level of inventory, there is still upward pressure on prices.
• I expect inventory to increase in 2014, and I expect the year-over-year increase to be in the 10% to 15% range by the end of 2014.
• However, if inventory doesn't increase, prices will probably increase a little faster than expected (a key reason to watch inventory right now).

Click on graph for larger image.

The NAR does not seasonally adjust inventory, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory (see graph of NAR reported and seasonally adjusted).

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and is now up about 4.3% from the bottom. On a seasonally adjusted basis, inventory was down 1.7% in December.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Another key point: The NAR reported total sales were down 0.6% from December 2012, but conventional sales were probably up significantly from December 2012, and distressed sales down.  The NAR reported that 14% of sales were distressed in December (from a survey that isn't perfect):

Ten percent of December sales were foreclosures, and 4 percent were short sales.

Last year the NAR reported that 24% of sales were distressed sales.   

A rough estimate: Sales in December 2012 were reported at 4.94 million SAAR with 24% distressed.  That gives 1.18 million distressed (annual rate), and 3.72 million conventional.  In December 2013, sales were 4.87 million SAAR, with 12% distressed.  That gives 0.68 million distressed, and 4.19 million conventional.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and conventional sales up.  A positive sign!

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in December (red column) were above the sales for 2007 through 2012).  There was one more selling day in 2013, so seasonally adjusted sales were down slightly.

Overall this was a solid report, but inventory needs to be watched closely (as usual).

Earlier:
• Existing Home Sales in December: 4.87 million SAAR, Inventory up 1.6% Year-over-year