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.


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