Are there really fewer homes for sale?

Clear signals in housing are always hard to come by.

Pending sales

Just look at the latest housing report. Pending home sales fell by 1.4 percent in June, yet remain above year-ago levels, according to the National Association of Realtors.

“Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” said NAR chief economist Lawrence Yun.  “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”

Housing starts

In June, Housing starts jumped by almost 7 percent from May, climbing to a 760,000 annualized rate, the highest figure of the recovery so far. Both single- and multi-family housing starts rose during the month. Permits for future building activity did cool a little bit to a 755,000 annualized pace, with the 3.7 percent dip concentrated in the always-volatile multi-family sector.

Home builders

With a fairly solid month in the books for June, it’s not hard to see that home builders became considerably more enthusiastic about market conditions. The National Association of Home Builders index of activity bounced up to 35 in July, a seven-point pop and the highest value for the index since 2007.  Single-family sales, expectations for the next six months, and traffic patterns in showrooms all moved up nicely during the month. Breakeven for the report would be a reading of 50, and although we remain well below that figure, we are about triple the low water mark of a few years ago.

Existing sales

That good news about the housing market was tempered to some degree by the latest report for existing home sales. In June, a disappointing drop of 5.4 percent was noted by the NAR, with sales slipping to an annualized 4.37 million rate for the month. A recent piece of analysis in the Wall Street Journal suggests that a lack of inventory is at least partly to blame for the slower sales pace. However, available inventory nudged point-two of a month higher and stands now at 6.6 months of homes for sale at the present pace.

In reality, this is little different than figures seen since last December.

For our part, we suspect that the slower pace of sales is more likely due to a deceleration in the economy which intensified in the second quarter.

Fewer cheap homes available

Perhaps it’s not the number of homes for sale, but simply that there are fewer bargain-priced homes available. A fair bit of inventory is in various stages of foreclosure/short-sale/REO limbo at the moment, and it may well be that those cheap homes are only trickling onto the market.

That might explain the continued increase in home prices, which has now increased over year-ago values for four consecutive months. If the market is comprised solely of relatively “higher priced” homes for sale, the median price would tend to continue to climb, at least for the moment. It should be noted that lower mortgage rates also provide support for rising home prices, as the monthly cost of a carrying a larger loan is offset by a smaller interest rate against which it is applied.

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