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The West needs more houses. A lack of supply is driving up prices — and pricing out first-time homebuyers.
The National Association of Realtors (NAR) has released data for existing home sales in July, and overall, the news is pretty good. Median prices in the U.S. extended a five-month streak of year-over-year increases. Home sales also rose across the nation.
However, in the West region, sales were flat from June-July, but up about 6 percent from July of last year. More important, the median price of an existing home in the West made a big jump from 2011: a whopping 25 percent, far more than any other U.S. region.
This is due to good old-fashioned supply-and-demand. There aren't enough existing homes for sale in the West to meet demand. NAR took particular note of this, not just in the West but nationally. The lack of "inventory," as the organization defines it, is affecting lower-priced homes, where first-time borrowers bearing mortgages collide with investors carrying suitcases of cash.
The dynamic is creating a tight rental market in California and actually preventing first-time homebuyers from taking advantage of historically low interest rates, which remain below 4 percent for a straightforward 30-year mortgage.
On the plus side, tight supply and rising demand — with interest rates likely to stay low for at least the next few years — will inevitably spur new construction, and that will get California's long-unemployed construction workers back to work.
All-cash investors are also moving in to get a lot of distressed properties — foreclosures and short sales — off the markets. These properties exert a drag on prices, so the sooner that inventory is cleared, the better.