Housing inventory is starting to drop, but it has a long way to go
I have stated a number of times here that I do not believe that the economy will stabilize until home prices stop falling, ideally to a level that is affordable enough to encourage consumer spending. The bad news is that home prices are falling at a record pace (see post: Home prices tank).
The good news is, according to today's report by the National Association of Realtors (see article: January existing home sales fall by 5.3 percent) we are finally starting to whittle away at the excess inventory of homes out there. Housing prices are not going to stabilize until the inventory gets down to a reasonable level. That is going to take time and likely lots of it given the fact that homes are still selling at an anemic pace.
When I heard on Bloomberg this morning that economists were expecting new home sales to rise this month I thought to myself, "Man these guys are on crack. There's almost no way that home sales will be up...even with the massive drop in prices and all of the foreclosures that are flooding the market." I was right (of course it's easy to claim that one was right when there was no witnesses ;) ). According to this morning's NAR report, sales of existing homes dropped 5.3% in January to their lowest level in nearly 12 years. Also of note, the NAR claims that the median sales price of U.S. homes slid 14.8% during Jan.
The months' supply of homes on the market will likely have to drop significantly from here for us to see stabilization in home prices, but at least we're now headed in the right direction. Builders have finally gotten the message and have stopped adding to the glut of available homes out there.
For me, housing is the key metric to focus on in this whole mess. The sooner home values stabilize, the sooner banks' assets will stop falling, the sooner consumer confidence can perk up, on, and on, and on... Keep a close eye on it to see when the economy will hit bottom and at least sit there, if not begin to slowly recover.