October 2020 housing data – still super-low inventory, still rising prices

I wanted to begin by noting this article from the great Calculated Risk. It discusses the
relationship between months-of-inventory and short-term price
changes, and includes a scatter graph between the two. It was this
idea from CR that inspired the San Diego version that’s become
central to the monthly updates here:

(To quickly explain this graph: the red line is the monthly change
in the SD Case-Shiller index; the blue line is months of inventory,
but inventory is inverted to make the relationship more clear).

This did a pretty good job of mapping the relationship between
inventory and prices through the bust and initial recovery, but
early in the teens the lines began to drift apart. Pigg reader gzz
offered a theory: the arrival of online real estate portals (Redfin
etc) sped up the inventory throughput cycle, changing the
“equilibrium” amount of inventory in a balanced market. Previously,
the equilibrium inventory (the level at which prices were stable)
was about 6 months. More recently, it’s been closer to 2 1/3 months.

With this adjustment for a faster moving real estate market, months
of inventory has done a really good job of calibrating where we are
on supply vs. demand (and thus, upward vs. downward price pressure).

Looking at October, it appears that prices have overshot for the
month, and so may moderate a bit in the months to come. But
generally the level of inventory is quite low… in fact, the
following longer term chart shows that months of inventory is the
lowest of the decade, even lower than the 2013 meltup.

Notwithstanding an adjusmtent to last month’s price overshoot, this
level of inventory argues for price further increases in the near
term.

Graph-fest below…