Watch Months-of-Supply!

Both inventory and sales are well below normal levels, and I think we need to keep an eye on months-of-supply to forecast price changes. Historically nominal prices declined when months-of-supply approached 6 months - and that is unlikely this year - but we could see months-of-supply back to 2019 levels in the next month or two.

As I mentioned in a recent interview with Lance Lambert at ResiClub:

"I expect this measure to continue to increase, and be over 4 months soon – and to be above 2019 levels in a few months. This doesn’t mean national price declines, but it suggests price growth will slow significantly later this year. We might see national price decline with months-of-supply above 5 (as opposed to 6) since most potential sellers have substantial equity and might be willing to sell for a little less."

Months-of-supply was at 4.1 months in June compared to 4.3 months in June 2019. Note that months-of-supply peaked at 4.3 months in May and June 2019 and then declined to 4.2 months in July 2019.

What would it take to get months-of-supply back to 2019 levels in July? And what would it take to get months-of-supply above 5 months? The following table is a simple exercise. If sales stay depressed at 2023 levels, how much would inventory have to increase to put months-of-supply at 2019 levels in July?

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