by Calculated Risk on 2/22/2021 11:36:00 AM

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 in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases.  

In 2020, with the pandemic, inventory dropped to record lows, and prices really increased (record low mortgage rates and demographics were factors too).

I don't have a crystal ball, but watching inventory helps understand the housing market.

Click on graph for larger image.

This graph below shows existing home months-of-supply (from the NAR) vs. the seasonally adjusted month-to-month price change in the Case-Shiller National Index (both since January 1999 through November 2020).

Case-Shiller for December 2020 will be released tomorrow.

There is a clear relationship, and this is no surprise (but interesting to graph).

If months-of-supply is high, prices decline. If months-of-supply is low, prices rise.

In the existing home sales report released last week, the NAR reported months-of-supply at 1.9 months in January. There is a seasonal pattern to inventory, but this is a record low - and prices are increasing sharply.