Saturday, February 24, 2007

Inventories at 23,000+ in August 2007?

I got offered a bet by a real estate agent friend regarding housing inventory levels for this year. He wanted to be me $100 that OC real estate inventory won't pass 20,000 units at ANY point this year. I didn't know if that was a good bet or not, so I built a crude (yes, crude) forecasting model to see whether or not I ought to take the bet.

The results were a little surprising:

The bars are color-coded in two ways, first by season (red is Summer; Orange is Fall, Blue, Winter and Green, Spring), and then the darker bars are actual figures where the lighter are the results of the forecast (also with an E at the front of their label.) Cool, huh?

I took as an assumption that because sales are so strongly seasonal, that one might be able to take the January inventory levels and use it as a "baseline" inventory number for the year. So I compared to inventory levels in Jan 2006 to each of the respective months, giving me a relative inventory increase from January by month. I then used a tampening factor to adjust the forecast downward so that it would come out to where we will be at the end of this month. I know, not very fancy or inclusive, but it's better than a Scotch-inspired guess.

Well, the model came up with some pretty interesting numbers, namely in the inventory levels for the months in and around summer:

E Jun-07 21,724
E Jul-07 22,721
E Aug-07 23,111
E Sep-07 22,743
E Oct-07 21,669

So my model, such as it is, predicted that we'd probably have five months with inventories over 20,000; so, this morning I gave my agent friend a call and accepted his bet. With that said, if inventories actually do break through 20,000 units, I think the $100 bet is that last thing either of us will be worrying about....


HB Bear said...

So what about you guys?

Where do you think inventories will end up in August?

Anonymous said...

Lower than your predictions. SD is a good indicator and less are being listed because people that don't have to are not since the market cooled and some nvestor's are now renting instead believin REIC's spin it wil go up. Coconutz!
Nice work though.

oc_fliptrack said...

OC is busting a year behind SD, and SD's inventory rose substantially last year. If OC continues to follow in SD's footsteps, we should see a nice rise in inventory.

Plus, the subprime shakedown is happening this year. This will hammer OC pretty hard and might be the "next leg down" for SD.

I'd keep the bet as-is.

HB Bear said...

Anynymous, you make a great point.

There seems to be at substantial incidental data to suggest that many more owners are renting their properties than selling them. Depending on the numbers this could push inventories down.

Man, if I only had a couple of years of rental county by ZIP....

Thanks for the post!

HB Bear said...

Fliptrack, I've heard that adage before, "OC follows SD in real estate."

Man, and you can't underestimate effect of the subprime meltdown. I posted yesterday on that topic and it looks bad, really bad.

Anonymous said...

It won't push them down it wll just hold them back from last years levels, they will still go way up, no way will they go down down.
Thanks for your blog,

HB Bear said...

Glad you like the blog!

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