December 2, 2009

Housing Inventory History past 5 years

The amount of homes for sale on the market at any given time versus the amount of people buying homes is an indicator of the health of the housing market. If the supply of homes is too high then there is too much supply versus the demand and prices will negatively impact prices. On the other hand if supply is tight then we'll probably see prices go up. This is basic supply/ demand economics.

The housing inventory is a measure of the amount of homes for sale on the market versus the amount of homes sold in a month. So for example of there are 5 million homes for sale and homes are selling at a rate of 1 million / month then we can say that there is 5 months of inventory. If there were 10 million homes for sale and they were selling 1 million / month then that would equal 10 months of inventory.

Here is a graphic showing the housing inventory level since 2004:

Right now the inventory level is 7.0 months. The housing inventory peaked at 11.2 a couple times in 2008 both on April again in November.

You can see that back in 2004 through 2006 timeframe the amount of housing on the market was around 4-6 months. Sales of homes were pretty healthy then and the market was doing well. So if we can get back to that level of supply then I'd expect that the market would be back to a relatively healthy state.

The downward trend in inventories from 2008 till now is a good sign for the housing market.

Data Sources: The data on for months of US housing inventory which had the #'s from 2004 till Oct. 2008. and individual monthly press releases from National Association of Realtors for the past 12 months.

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