The burgeoning slowdown I described in last
month’s post seems to have arrived… witness, months of
inventory:

That is quite a leap, putting months of inventory 63% above last
September’s level.

That looks pretty dramatic compared to the past 4 years, but less so
if we widen our timeframe. In fact, active months of inventory in
September 2014 was exactly the same as in September 2018:

That turned out just fine for home sellers as things picked up again
in the spring of 2015. Perhaps it will be so again. But here are a
couple things to bear in mind…

• After at that point, the 30 year-mortgage rate declined for
  the next two years (from 4.2% in Sept 2014 to 3.4% in late
  2016). That surely fueled some of the rebound.
• The housing valuation ratio is about 10% higher than it was
  back then, and mortgage rates are 50 bps higher. So there is
  more of an affordability headwind now than in 2014.

So things might not just pick up again next spring as they did last
time… but, that’s a long way away and lots can happen, so we’ll
see. For the time being, I think it’s reasonable to say that a
slowdown has arrived.

Despite the high inventory, the single family price per square foot
managed to increase for the month:

But if inventory remains at this level I expect to see more declines
than increases in the months ahead, especially since we now in the
seasonally weak time of year anyway. The “new normal” inventory vs.
price graph (which is the best fit in recent years predicts price
declines at a rate of about 6%/year at this inventory level, for
what that’s worth.

More graphs below: