Housing Market Bottom?? Really??

(originally published on March 25, 2008)

Technorati Tags: existing homes sales,inventory,months of supply

 

We were informed this week that sales of existing homes in the US unexpectedly rose 2.9% in February to a seasonally adjusted annual rate of 5.03 million. This was the first increase in seven months. Understandably, it caused quite a flutter among economists, with some of them, perhaps prematurely, calling for a bottom to the unending housing spiral.

But as far as economic data go, one month do not maketh a trend. Also, there is a great deal more to this data than what the headlines would suggest. The median price of single-family homes dropped 8.7 percent from February 2007, the most in four decades of record keeping by the National Association of Realtors (NAR). Although sales increased 2.9% over January’s figure, they were down a phenomenal 23.8% from February 2007.

Existing Home Sales - Seasonally Adjusted Annual Rate

 

Further, as seen in the chart above, on a seasonally adjusted annual rate, February 2008 was the weakest February since 1998. That cannot be great news.

Existing Home Sales – Not Seasonally Adjusted

 

Excluding the seasonal adjustment – on a non-seasonally adjusted basis – sales have plunged in February 2008 as compared to the prior three years. Also, it can be seen that February is one of the less important months in the calendar as far as existing home sales go, with sales generally remaining muted, before the spring selling season that begins in March.

Existing Home Sales - MoM percentage change (2004-2008)

 

Also, over the past few years, February has always been better than January. The average increase from January to February over the past four years has been 7.2%. The 2.9% gain in February 2008 is less than half of what we have seen over the past few years. Part of the reason could be that February 2008 was a leap year. Small changes in ‘Not Seasonally Adjusted’ sales (due to leap year, weather or other factors) can have a significant impact on the headline ‘Seasonally Adjusted’ numbers.

But there were a few positive data points as well. Nationwide inventory of existing homes decreased 3% in February to 4.03 million homes available for sale, representing 9.6 months of supply at the current sales pace.

Existing Home Sales - Inventory

Existing Home Sales - Months Of Supply

 

Inventories have somewhat stabilized over the past few months in the wake of a nationwide plunge in home prices. But even as inventory levels have stabilized, months of supply have risen and have remained high, as sales have plunged (months of supply = inventory/home sales rate). Typically, inventories have tended to decline in December, slowly rebounding in January and February and rising more sharply starting March as the spring selling season starts. It is thus only natural to expect inventories to reach record levels again later this year.

Chart – Inventory : Normalized seasonal pattern

(data normalized to the ending level of the previous year = 100)

 

The data over the next few months will tell us if indeed inventories are stabilizing, or if the decline in February was just noise. Either way, any contention of a bottom to the housing market is preposterous.

P.S. : Charts courtesy of Calculated Risk

 

Update :

Housing Market Bottom?? Check out the plunge in home prices in January