Must-Sell Housing Supply Overwhelms Demand
Last week, we saw that the housing supply and demand situation improved notably in April as the number of months' worth of resale inventory retreated to early-2007 levels. Today we will have a look at how well the improved housing demand stacks up against "must-sell" inventory, that crucial subset of inventory that can't be taken off the market to await better times.
For a while now I've been using Notices of Default (NODs) as a proxy for must-sell inventory. The idea is that homes in foreclosure represent the vast majority of must-sell inventory, and that homes whose owners who have defaulted on their mortgages are likely to become must-sell inventory in the near future. On the demand side, I've used historical single family home sales (nothing against condos -- I just couldn't find any historical data). By dividing the number of home sales by the number of NODs in a given month, we can see how demand stacks up against likely must-sell supply.
 The accompanying graph shows that it pretty much doesn't stack up at all. April's 1,707 single family home sales, while a huge improvement from the prior month, were dwarfed by that month's 3,601 NODs for a sales-per-default ratio of .47. This compares quite poorly to the early-1990s bust, in which the sales-per-default ratio bounced between 1.25 and 2.25 for the bulk of the time.
Including condos, the total number of April existing sales was 2,475 homes -- only 69 percent of April NODs. (I do not include new home sales in this calculation as new homes are their own type of must-sell inventory not measured by the NOD proxy).
April's activity surge brought out a whole crew of bottom-callers. And the fact that demand is starting to compare more favorably with want-to-sell supply is indeed a notable bright spot. But I just don't see how much of a recovery can take place until demand starts to stack up far better against must-sell supply.
-- RICH TOSCANO
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