Last week we took a look at the fact that more homes have been going into foreclosure than have been selling during 2009. I wrapped it up on this circumspect note:

For all the relief that the spring-summer rally has brought to the real estate bulls, it seems a bit premature to uncork the champagne before that orange line climbs out of the abyss.

The orange line in question appeared on a graph tracking the ratio of monthly home sales to monthly homeowner default notices. To save you some clicking, here it is again:

An issue with this graph is that the combination of seasonal variations and general volatility of default rates causes the orange line to spike up and down pretty drastically. So in order to smooth out the spikes, I recreated the graph using the 12-month moving averages of the sales per default ratio and, for consistency, home prices:

This smoothed-out graph shows even more clearly the two conclusions that have been discussed hear often: that homes prices tend to rise when the sales-per-default ratio is high and fall when the ratio is low; and that directional changes to the ratio tend to precede price changes.

The ratio has now bumped up off its low point, but it remains extremely depressed compared to times past. This next graph, which displays the smoothed sales-per-default ratios during the current and prior busts, shows that the ratio is less than half the level it was this far into the 1990s downturn:

The sales-per-default ratio has traditionally provided a good read on housing market distress by measuring how much demand there was compared to how many homeowners were having trouble paying the mortgage. Unless troubled mortgages start getting worked out in vast numbers — and this is not happening as of yet — it seems like the ratio should still serve that purpose.

Of course, the relationships between sales, defaults, and prices are not written in stone. Given the uniquely wacky nature of the current housing crash the prior patterns may play out a little differently this time.

Still, the burden of proof is on those who would claim that the the relationships that worked up until now are no longer valid. The real estate boosters — and yes, they are coming out of the woodwork — need to bring some evidence to the table if they are going to claim that these charts are not a big cause for concern.

— RICH TOSCANO

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