Must-Sell Housing Supply Overwhelms Demand

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In past columns I have charted the number of monthly San Diego home sales compared to monthly mortgage defaults. The idea was to get an idea of future home price pressures by measuring how much demand existed to offset potential “must-sell” housing supply. A longer explanation is available in the original article on this topic.

The graph to the right shows that by this indicator, the housing market’s prospects have gone from bad to worse. There were actually more default notices in August than there were existing single family home sales — something that never happened over the course of the early-1990s housing bust.

It’s important to note that due to data limitations, we are measuring a subset of home sales (existing single family homes) against defaults of all types. What’s informative is not the raw number itself, but how that number compares with past readings.

By that measure, the August numbers sure don’t hold up well. It’s tough to see due to the scale of the graph, but the worst August of the entire 1990s downturn — August 1992 — experienced twice as many sales per default as we saw last month. This indicator is clearly signalling more downward home price pressure ahead.

— RICH TOSCANO