CAPITAL ECONOMICS – The increase in the number of existing home sales in February is more evidence that the housing recovery is continuing unabated.
But the real news in this morning’s National Association of Realtors (NAR) numbers is the rise in the inventory of existing homes for sale. This may just be the start of the supply increase that we have been anticipating.
Existing home sales rose by 0.8 percent month-to-month in February, to an annualized 4.98 million.
This was the highest level for existing home sales since November 2009, when activity was boosted by the expiration of the home buyer tax credit. That unsustainable rebound aside, existing sales are at their highest level for nearly six years.
Condo investors fuel market
Condo and co-op sales drove the increase in existing home sales, rising by nearly 9 percent month-to-month. That reflects the large number of investors drawn to housing by attractive returns.
But it’s becoming clear that the market is no longer dependent on a ready supply of distressed properties to sustain sales numbers. After all, the number of homes selling under distressed conditions has dropped by 21 percent since this time last year.
The rise in sales activity has been driven by increasing numbers of conventional sales.
On NAR’s unadjusted numbers, inventory rose by 9.6 percent month-to-month in February.
Accounting for normal seasonal variations brings this down to a 3.7 percent month-to-month rise, or 2.02 million homes for sale. Nevertheless, this is the first increase in supply of any real significance for more than two years.
Supply remains historically short
Admittedly, that only takes supply back to the level seen in December and the months’ supply of unsold homes, which rose to 4.9, is still tight.
So February’s rise in supply will do little to abate the upward momentum of prices which, according to Federal Housing Finance Agency data also released this morning, rose by 0.6 percent month-to-month in January.
But with selling conditions improving and more households being taken out of negative equity, we wouldn’t be surprised to see further gains in inventory later this year.
It’s too early to say if the trough in supply is behind us, but we get the sense that it’s close.
• DeadlineNews.Com contributed to this story.
