by Calculated Risk on 10/09/2014 01:02:00 PM

Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And at the beginning of this year I argued house price increases would slow in 2014 because of the increase in inventory.

I don't have a crystal ball, but watching inventory helps understand the housing market.   If inventory kept increasing rapidly in certain markets, then we would eventually see price declines.  However it now appears the inventory build is slowing in some former distressed markets.  

The table below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento (September not available yet).  Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It now appears the inventory build is slowing in these markets.

This makes sense.  Prices increased rapidly in these markets in 2012 and 2013 (bouncing off the bottom with low inventory).  Higher prices attracted more people to list their homes.  But now that prices have flattened out - and there is plenty of inventory - potential sellers aren't as motivated to list their homes.  Unlike following the housing bubble, most of these potential sellers probably don't need to sell, so listings will not grow to the moon!

I still expect overall inventory to continue to increase, but this is something to watch.

Year-over-year Change in Active Inventory
Month	Las Vegas	Phoenix	Sacramento
Jan-13	-58.3%	-11.7%	-61.1%
Feb-13	-53.4%	-8.5%	-51.1%
Mar-13	-42.1%	-5.2%	-37.8%
Apr-13	-24.1%	-4.9%	-10.3%
May-13	-13.2%	-2.1%	5.3%
Jun-13	3.7%	-1.6%	18.3%
Jul-13	9.0%	-1.6%	54.3%
Aug-13	41.1%	2.4%	46.8%
Sep-13	60.5%	7.8%	77.3%
Oct-13	73.4%	15.7%	93.2%
Nov-13	77.4%	15.2%	56.8%
Dec-13	78.6%	20.9%	44.2%
Jan-14	96.2%	29.6%	96.3%
Feb-14	107.3%	37.7%	87.8%
Mar-14	127.9%	45.5%	71.2%
Apr-14	103.1%	48.8%	46.3%
May-14	100.6%	47.4%	83.7%
Jun-14	86.2%	43.1%	91.0%
Jul-14	55.2%	35.1%	68.0%
Aug-14	38.8%	21.9%	60.6%
Sep-14	29.5%	13.2%	NA