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A sign is seen outside of a KB Home sales center in Richmond, California. A lack of housing supply in the Western U.S. is spurring homebuilders to start building again.
The National Association of Realtors (NAR) has released its pending home sales index for August. The index fell a bit from July but is up more than 10 percent from last August.
That's the national picture. But in the West, the story is...well, distorted. The July-August decline was more than 7 percent, and the year-over-over year was more than 4 percent. What's to blame? A lack of housing inventory, according to the NAR.
I've been noting this trend often here at the DeBord Report. It's both good and bad. Good because a lack of supply to meet demand is encouraging homebuilders to...build! And that means unemployed construction workers have a good chance in the future to be not unemployed. But it's bad because the lack of supply, combined with historically low interest rates, is driving up prices. And it's dragging down pending sales — because there just aren't enough homes to be pending a purchase!
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It's becoming obvious that due to rising prices and limited housing stock in the West, more construction is going to be necessary in the future.
The news on prices is good and providing further evidence that the U.S. housing market has formed a bottom. In fact, it appears now that a small bubble in prices may be developing in the West, with sales moving up moderately from July but flat since last August at the same time that prices are rising more substantially year-over-year.
Here are the two critical paragraphs from the NAR's press release:
The national median existing-home price for all housing types was $187,400 in August, up 9.5 percent from a year ago. The last time there were six back-to-back monthly price increases from a year earlier was from December 2005 to May 2006. The August increase was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.
Existing-home sales in the West increased 8.3 percent to an annual level of 1.17 million in August but are unchanged from a year ago. With ongoing inventory shortages, the median price in the West was $242,000, which is 16.3 percent higher than August 2011.
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Tract homes in Santa Clarita, California. Pending homes sales in the U.S. are at levels not seen since 2010.
We've gotten two positive housing data sets in the past two days. First, the Case-Shiller index for June is indicating that the U.S. housing market has formed a bottom. Today, the National Association of Realtors released July pending home sales — those are homes that have been contracted for sale but not yet sold — and the improvement over 2011 is notable.
This is from the NAR:
"[T]he index is at the highest level since April 2010, which was shortly before the closing deadline for the home buyer tax credit. "While the month-to-month movement has been uneven, more importantly we now have 15 consecutive months of year-over-year gains in contract activity," said [Chief Economist Lawrence Yun].
Bear in mind that Case-Shiller is, to an extent, designed to counteract any excessive frothiness that might percolate in the U.S. housing market due to forward-looking indicators such as pending home sales. Case-Shiller focuses on prices and lags the market by a few months because in the 20 cities the index tracks only homes that have been sold are counted.