Several reports released in August show that home prices are moving off the bottom.
- In the second quarter, the S&P Case-Shiller national index rose 2.2 percent quarter over quarter and 1.2 percent year over year. This quarterly gain was the largest since late in 2005.
- Prices of distressed homes increased in the second quarter as well. Realty Trac reported that the average price of a home in process of foreclosure or owned by banks rose 7 percent year over year, the largest increase since 2006. The increase can be attributed to investors, who according to Michael Krein, president of the National REO Brokers Association, have been bidding 5-25 percent above list price. In addition, the price of homes in default or soon to be put up for auction (primarily short sales) increased 5 percent quarter over quarter.
- Zillow reported a 0.5 percent increase in home prices for July over June, and a 1.2 percent increase year over year.
Higher home prices can be attributed to the shrinking number of homes for sale on the market.
- The demand for distressed properties is outstripping supply. Supply in many markets is meager, a result of single-family rentals absorbing some of the supply on one end, and foreclosure levels that fell to the lowest level since 2007 on the other.
- Existing home inventory in the same period was reported at 6.4 months. Waiting for prices to recover further, only owners who absolutely have to put their homes on the market are doing so.
- New home inventory in July was reported at 4.6 months, a critical factor for continued strength in builder confidence. The Home Builders/Wells Fargo index rose 2 points to 37, the highest level since February 2007.
We're starting to see the effect of this limited supply in the sales of distressed homes; Realty Trac reported a 22 percent drop in the number of distressed sales in the second quarter. In addition, some economists believe that we are likely to see a drop in the sales of existing homes in the coming months because of the supply issues. If there were a healthy inventory of new homes, new home sales could benefit. The question is this: Is 4.6 months of inventory enough to take advantage of this event should it occur? Residential construction numbers (Table 1) show that the number of new home starts fell by 1 percent July over June, though both permits and completions were significantly stronger.
The following tables show the details of the housing statistics during July.