For some reason I have not updated my long running home inventory chart in recent months, so I figured I would show the most recent data from the National Association of Realtors. As I have long discussed on this blog, inventories are the crucial part to the story because a balancing of longer term supply and demand is the only thing that will halt the home price decline for good.

As you can see below, inventories really took a turn for the better during the recently ended prime selling season (the data here is as of October 2009). The first-time homebuyer tax credit definitely played a big role in that, so the question going forward is “what happens when the extension of the credit expires in 1H 2010?”

home-inventory-jan07-to-oct09

I think sales will certainly slip at that point, but if the economy is growing, monthly job gains come to fruition by then, and consumer confidence is reasonable, there is a good chance inventories might not see another large spike higher. In that case, I believe we will see home prices stable in 2010. Long term, home owners should expect historically normal appreciation, which means about 3% annually.

Enjoy this post? Subscribe to the blog and never miss another one:
Subscribe in a reader | Subscribe by email | Subscribe with Kindle

You can also contact Chad’s investment firm or mirror his trades on kaChing