Sales have been creeping down, which is normal for this time of year:
But inventory has been creeping up, which is not:
The result has been a significant rise in the all-important months of inventory ratio.
Here’s a zoomed-out look at months of inventory:
This next chart shows why I called this indicator “all important.” That was unserious, by the way… I actually think many people overestimate its importance by making long-term predictions based on current inventory levels. Inventory is an ephemeral thing, subject to significant changes (as the chart above shows), and the level of inventory at any given moment tells you next to nothing about the long-term sustainability of housing valuations.
However, it tells you a lot about near-term price pressures. And this chart of (inverted) inventory and monthly price changes shows that we’re approaching a level at which home prices have typically stalled or declined.
Despite that, prices were resilient last month:
However, given the high and rising supply-to-demand ratio, my guess is that prices will struggle to gain further ground in the very near term.
On the upside, mortgage rates have backed off quite a bit, so monthly payments will likely improve a bit in next months’ version of the below graph. However, they remain firmly in nosebleed territory, and as I discussed here, rate moves seem to cause offsetting reactions in supply and demand. So it remains to be seen how much this helps.
More graphs below…