In addition to ipods, it appears many Americans, more than most people thought, celebrated the holiday season with a new home too.
The NAR released the December existing home sales report today which showed that home sales were up 6.5% on a seasonally adjusted basis from last month to 4.74 million units. This is good news, but it is still makes 2008 the weakest rate of home sales since 1997.
Additionally, the inventory (supply), the other half of the real estate equation, dropped -11.7% last month to its lowest level since January of 2007 to 3.676 million units.
The result? A 9.3 month supply of housing, the lowest since May of 2007.
Clearly these are all positive signs, increased demand and declines in inventory is exactly what the market needs in order to be able to recover. With that being said, I would urge caution in thinking that the real estate market is on its way to a recovery. And the reason I would urge caution is two-fold.
First, we are going to need demand to increase and for that demand to be sustained. The increase in demand in December was certainly a result of historically low mortgage rates. It appears a lot of people that were on the fence, made a decision to buy. I'm not certain how much of a reservoir there are of these people as homeownership rate are still hovering near 68%, well above the historic norms of 64%. There is also the question as to how long the government is willing and able to keep rates at historic lows.
Second, in regards to the inventory declining, this is not unprecedented in the month of December, in fact it is the norm as I have written about before. I have also written about the fact the the inventory that the NAR reports on is actually worse than the numbers indicate for three reasons. Those reasons are modificaitons moratoriums, and ghost inventory.
The big picture is that despite a -15.3% home value decline from last year, the month's supply of housing, the relationship between supply and demand, has only improved 4.1% from last December. In December of 2007 there was a 9.7 month supply of housing and in December of 2008 there is a 9.3 month supply. What this means, is that even if the market is heading in the right direction compared to last year, it is still going to be a long road to a bottom, and that road is going to include additional home value declines.
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