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Sunday, August 16, 2009 3:02 AM

Too Early For Housing Price Stabilization

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It's far too early for housing price stabilization. There is simply too much inventory relative to sales. The reported "green shoots" are a mirage.

Here are a couple of charts from a recent Contrary Investor that shows the problem.

Months Supply At Current Sales Rate

The current inventory of homes for sale relative to the rate of current sales remains very high. We’re above ten months of supply right now when the average for the entire period shown is much closer to a touch above 6 months. It’s relatively conventional wisdom (or at least has been in the past) that anything above 8 months means prices are still falling. So the first stop before beginning to feel better about life in the land of residential real estate is 8 months of available supply or less. We've got a ways to go yet.

Case-Shiller Month Over Month and Year Over Year

A few weeks back the folks who put together the Case Shiller home price index showed us that on a non-seasonally adjusted basis, home prices actually ticked up just a bit in May. We have a few comments. First, over the last three years, May numbers have been the strongest (less bad) of each year. Seasonality related to the “selling season”? Of course it is. So before jumping up and down for joy, we need to see what the months ahead bring. If this is simply seasonal strength, then perhaps immediate month over month declines lie ahead, as was the case in prior years.

Mike "Mish" Shedlock
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