Housing Market: Good News, Bad News

Total existing-home sales fell 8.4% to a seasonally adjusted annual rate of 6.12 million units in March. That compares to a pace of 6.68 million in February, and is 11.3% below the 6.90 million-unit level in March 2006. The national median existing-home price for all housing types was $217,000 in March, which is 0.3% below March 2006 when the median was $217,600.

Headlines and stories about yesterday's March sales report included "Weather Hits March Existing-Home Sales After Three Monthly Gains," "Weather Curtails Existing-Home Sales," both from the National Association of Realtors, and "House Prices Slide as Property Glut Grows" from the WSJ.

One statistic in the monthly real estate sales report that doesn't always get a lot of attention is the "months supply of inventory at the current sales rate," which I think is one the best measures of the condition of the housing market. The current value is 7.34 months, which means it would take 7.34 months (until the first week of December) to sell the current inventory of homes (3.745 million) at the current sales rate (510,000 homes per month).

As the chart above shows, the months supply in 2004-2005 was about 4.5 months, and now is closer to the 7 month range. Another way to interpret "months supply" is that it used to take a little more than 2 months on average to sell a house in 2004-2005 (1/2 of the months supply) and it now takes closer to 3.5 months on average to sell a house. The high and rising "months supply of houses" measure indicates that it is increasingly shifting towards a buyer's market.

Bottom Line: The "good news" about the soft housing market is that it is definitely a "buyer's market," in contrast to the "good news" several years ago when it was definitely a "seller's market." And pay less attention to unit sales and median prices and more attention to "months supply" to assess the real estate market.