The Housing Market
Sales figures for single-family homes were relatively good in October—the key word being relatively. In the market for new homes, sales increased 1.7 percent in October, which wouldn’t be noteworthy under normal conditions. But considering that sales have fallen an average of 2.4 percent per month over the past 27 months, a slight increase seems rather positive. In the market for existing homes, sales were virtually unchanged in October, which, again, wouldn’t be noteworthy except for the fact that it is the best showing in the series since February. In fact, October marked only the fourth time since the end of 2004 that sales of neither new or existing single-family homes fell. And though that seems like great news, keep in mind that both of these numbers are preliminary and will be revised in the months to come.
Looking at the long-term trend, this month’s positive figures are more or less lost. Since peaking in mid 2005, new and existing single-family home sales are still down 47.6 percent and 30.6 percent, respectively. In addition, the median sales prices of both new and existing single-family homes are down a little more than 10 percent from two years ago.
The inventory story isn’t very pretty either. While the current inventory level (in terms of months of supply at the current sales pace) is not unprecedented in either market, levels in both markets are very much elevated. (Though it is not shown on the chart below, the inventory of existing single-family homes on the market relative to the current sales pace was higher than it is now on several occasions, most recently in 1985.) In the market for new homes, the actual number of homes on the market has been declining steadily since July 2006, as home builders have been adjusting their inventory levels. However, throughout this period sales have been falling at a faster pace than inventories, resulting in greater months of supply. In the market for existing homes, where inventories can be much more difficult to control, the actual number of homes on the market has generally continued to increase as the sales pace has declined, resulting in a very rapid and steady increase in the months of supply on the market.