Economist's Commentary: May 12, 2008

Inventory of Fresh Listings Are Falling

By Lawrence Yun, Chief Economist

The current inventory of homes on the market is very high. Over the past year, about 4 million existing homes have been sitting on the market at any given time in the country. The corresponding figure in months supply term has been 10 months (i.e., it would take 10 months to clear the inventory at the current sales pace).

Despite the high headline figure on inventory, the number of fresh listings reaching the market has been clearly falling. Low sales activity is leading to more homes sitting on the market for a longer period. The rush of homes being dumped on the market appears to have already past. Many real estate speculators have already turned in their keys as home prices fell in their invested market. Evidently, there is only a trickle of these speculators left to dump properties.

I measure fresh listings in the following way: take at the end of the month inventory of the prior month, then measure raw transactions in the current month. The past month's inventory would have been drawn down as a result. Now compare the current total end-of-the month inventory with the inventory that would have been drawn down in the absence of any new fresh listings. The difference is the number of fresh listings.

In equation form, it is:

Fresh Listings = Current month inventory - (Prior month inventory - raw sales in the current month)

The following chart shows the trend in fresh inventory in the past four years by month. It clearly shows lower level of fresh listings reaching the market in early 2008 compared to comparable months in the prior years.

Another way to view it is by eliminating month-to-month volatiliy and examining the 12-month average of fresh listings. Doing so yields the following chart. After peaking in early 2006, then number of fresh listings have been falling consistently and measurably.

MLSs data includes some amount of both foreclosed and short sales so this falling trend in fresh listings is not an aberration but a clear improving trend for the better for the housing market.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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