Is Housing Inventory Much Lower Than We Think it is?

An analysis of the existing home sales by Calculated Risk noted that inventory may be much less than what the National Association of Realtors report shows.

Inventory is very low, and was down 13.4% year-over-year (YoY) in August. Also, as housing economist Tom Lawler has noted, the local MLS data shows even a larger decline in active inventory (the NAR appears to include some pending sales in inventory).

"The inventory measure in most publicly-released local realtor/MLS reports excludes listings with pending contracts, but that is not the case for many of the reports sent to the National Association of Realtors (referred to as the “NAR Report!”),” says Lawler. “Since the middle of last Spring inventory measures excluding pending listings have fallen much more sharply than inventory measures including such listings, and this latter inventory measure understates the decline in the effective inventory of homes for sale over the last several months.

“It seems likely that active inventory is down close to 25% year-over-year. Months-of-supply at 2.6 months is still very low, but above the record low of 1.9 months set in December 2020 and January 2021. Inventory will be important to watch in 2021.

Sales of existing homes during August declined 2% from July, ending two straight month of increases.

Resales of single-family homes, townhomes, and condominiums fell to a seasonally adjusted annual rate of 5.88 million, which was down 1.5% from 5.97 million posted in August 2020.

Some of the increase in sales since the beginning of the pandemic was probably related to record low mortgage rates, strong second home buying, a strong stock market and favorable demographics.

Also, the delay in the 2020 buying season pushed the seasonally adjusted number to very high levels over the winter. This means there are going to be some difficult comparisons in the last several months of 2021.

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