Explaining Southern California's economy

Tight housing market in the West continues to push home prices up

New Home Sales Hit A Record High

David McNew/Getty Images

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.

Hot on the heels of the government release of August existing home sales data this morning, the National Association of Realtors put out its own report on August sales — and prices.

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.


Case-Shiller: Los Angeles loses a bit of ground in June

David McNew/Getty Images

A "for sale" sign stands outside a home in Pasadena. The Case-Shiller index for June showed prices moving up slightly in L.A. for June, but not as much as in May.

June Case-Shiller numbers have just been released. The news for Los Angeles — one of the 20 U.S. cities whose home prices the index tracks — is mixed. Prices in L.A. didn't mount gains that were as strong as May, when they ticked up 2.2 percent from April. For June, the rise was only 1.7 percent, just slightly better than the 1.5 percent the city's housing market turned in for the March-April period.

Year-over-year, prices in Los Angeles were down 0.6 percent. Yes, that's a tiny drop, but it was significant enough for Standard & Poor's, the company that owns the Case-Shiller index, to call it out, in the context of a national trend of price increases since last June: "There were only six cities – Atlanta, Chicago, Las Vegas, Los Angeles, New York and San Diego – where the annual rates of change were still negative."


Case-Shiller: Los Angeles home prices continue to rise in May

May Case-Shiller


Home prices continue to rise in Los Angeles and the U.S., but overall, they're still down from a year ago.

May Case-Shiller numbers are out, and for Los Angeles, the news is good. Prices moved up 2.2 percent from April to May, according to the index, which tracks data for both a 10- and 20-city group. This reinforces a trend that we saw starting earlier this year.

As I wrote last month:

In L.A., February-March saw a tiny 0.1-percent increase after a January-February month-on-month decline. But the March-April uptick was better: 1.5 percent. This could mean that prices are gaining a footing and could start to build on their gains.

And now April-May was better still. In fact, with a 2.2-percent increase, L.A. matched the composite, which was up 2.2 percent in the aggregate. However, year-over-year, L.A. home prices for the period were down more than for the overall index: a decline of 2 percent.


June home sales are down in the U.S., but up in the West

Justin Sullivan/Getty Images

A construction worker installs a window in a new home in San Mateo, California. Home sales declined in June nationally, but rose slightly in the West.

The Commerce Department just released data on new home sales, and the data overall is not good. Sales fell by a worrying 8.4 percent in June. This erases last month's impressive gain of 7.9 percent (which was revised up slightly). The silver lining in this dark cloud is that compared to last June, sales are up nationally by about 15 percent.

Regionally, the Northeast was completely crushed, with a 60 percent decline in June from May. But the West held up with a 2.1 percent gain.

The news contrasts with recent speculation that the housing market in the U.S. is forming a bottom for falling prices (you have to be careful, though, about assuming that sales data and prices data are somehow connected.) 

There's another factor to take into account, however. As Reuters points out, housing inventories are "near record lows," at least where new homes are concerned. What's holding back a more robust recovery is the sluggish economy — it only grew at 1.9 percent in the first quarter and added on average less than 80,000 jobs in the second quarter. Plus, the markets are worried about the neverending eurozone crisis and its latest phase, the apparent collapse of Spain's financial system. 


Zillow is calling a housing bottom. What is Zillow talking about?

Justin Sullivan/Getty Images

A construction worker on the top of a home under construction at a new housing development on in Petaluma, California. If we have hit bottom, we may start seeing more of this kind of activity.

Zillow, the online real estate service, has called a bottom for the U.S. housing market. Literally. This is from today's release:

Home values in the United States have reached a bottom. The Zillow Home Value Index (ZHVI) rose on an annual basis for the first time since 2007, increasing 0.2 percent year-over-year to $149,300, according to Zillow's second quarter Real Estate Market Reports. Values have risen for four consecutive months.

A rise of 0.2 percent may not be terribly significant, so take this all with a healthy grain of salt — and an awareness that Zillow, as Chicago Now's Gary Lucido points out, indexes home values based on its own metrics, rather than on actual sales, as does the important Case-Shiller index.

Case-Shiller for May comes out next week, so you can look at Zillow's pronouncement and say, "Hmmm...interesting timing!" And you'd be on to something, because Case-Shiller has been signalling at least the formation of a bottom in U.S. housing prices for a few months now.