In the last update, I wrote this regarding the steep December drop in monthly home prices:

The single family median price/sqft got smoked for almost 6% in December, but that is likely due to compositional effects (a change in what’s being sold) as opposed to a “real” change in the market value of housing… This is just the kind of thing that shows up in a noisy data series like this. I think the takeaway is: whatever the actual change in home values might have been, it was likely to the downside.

That conclusion might have been premature, because in January, the median price per square foot turned around and surged by almost 8%! 

Clearly there is some major noise in the monthly figures here. While we wait for that to settle out, let’s take a look at supply and demand…

Inventory dropped by 19% from December:

…while pending sales increased by 25%:

…resulting in a significant decrease in months of inventory:

Here’s a longer look at months of inventory. Comparing to post-GFC/pre-Covid levels, we’ve gone from “middle of the range” to “low end of the range.” 

Bear in mind that this was January, which is seasonally weirder than most months. We will get a better read soon. With that said, here is the relationship between months of inventory and price changes. The current level of inventory has historically coincided with rising prices. 

One interesting characteristic here is that while both supply and demand are in pretty reasonable balance with each other, both are very low compared to history. See the next two graphs, first supply and then demand. So it continues to be a bit of a standoff. Who will blink first? 

More graphs below…