Wednesday, February 25, 2009

More on Housing: Existing Home Sales

Not good........

Sales fell to an annualized rate of 4.49 million homes, an 11 year low. Distressed properties accounted for 45% of the volume.

I put the above graph together to illustrate the price declines that are needed to reduce inventory. The last 13 months of data is included. The X axis tracks the amount of months it would take to eliminate the inventory of existing homes (at the current sales pace). The Y axis is the average U.S. home price. The black line is a regression trend line.

The average inventory for the last year or so is 10.4 months. According to the most recent report, inventory has dropped to 9.4 months. Good, right? Well take a look at where prices had to fall to in order to achieve an inventory number that is a bit better than average. We are not out of the woods.

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