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The Impact Housing Inventory Has on Prices

We attempt to explain the current real estate market both simply and effectively. We either create or search for great visuals or graphs that do just that. We have been trying to help our readers realize that real estate is just like any other industry: pricing will be determined by the theory of ‘supply and demand’. Months’ supply of inventory is the  industry’s gage of supply and demand.

Calculated Risk has constructed a graph which depicts the impact the months’ supply of housing inventory has on home prices. We want to thank them for creating the graph and also for allowing us to share it with our readers.

Here is the graph and Calculated Risk’s explanation:

“This graph shows months of supply and the annualized change in the Case-Shiller Composite 20 house price index. Below 6 months of supply (blue line) house prices are typically rising (black line).

Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

The dashed red line is the estimate for months of supply in July. Through the roof! And I expect we will see double-digit months-of-supply for a number of months.

This is a key reason why I expect house prices to fall further later this year.”

As we can see, the months’ supply of inventory has a major impact on home prices. On Wednesday, we will post on tomorrow’s release of the National Association of Realtors ‘Existing Home Sales Report’. That report will give us the actual months’ supply of inventory for July.

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1 reply
  1. Alex Cortez
    Alex Cortez says:

    Looking forward to your post on Wednesday. With estimated inventory sky-rocketing thanks to a huge shadow inventory, it’ll be interesting to see how things turn out. To succinctly summarize it for consumers, the more inventory, the lower the prices.


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