Supply, Demand and Housing in January.

by w3woody

Case Shiller: House Prices fall to new post-bubble lows in November (seasonally adjusted)

S&P/Case-Shiller released the monthly Home Price Indices for November (a 3 month average of September, October, and November). This release includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities).

Two reasons why prices drop: either (a) supply is high, or (b) demand is low. With housing, supply may be high because banks are clearing their backlog of “hidden” inventory (by selling REOs and accelerating the foreclosure process)–and to me, that’s a good thing because so long as there is a backlog of distressed housing, the U.S. economy will not make a full recovery.

If demand is low, however, this means a recovery will take longer.

And low and behold, it may very well be (b): Existing Home Inventory declines 17% year-over-year in January

HousingTracker reported that the January listings – for the 54 metro areas – declined 17% from the same month last year. The year-over-year decline will probably start to slow since listed inventory is getting close to normal levels. Also if there is an increase in foreclosures (as expected), this will give some boost to listed inventory.

This is just inventory listed for sale, sometimes referred to as “visible inventory”. There is also a large “shadow inventory” that is currently not on the market, but is expected to be listed in the next few years.

(Note: I originally thought (a), thinking “inventory” was low because houses sold. But “inventory” is houses for sale–supply–rather than what’s left over after all the houses have sold–an indicator of former supply. Of course many other factors drive price: the quality of the houses sold, for example, so this is at best a very poor tea reading.)