The NAR announced this week that existing home sales rose 3.6% to a 4.89 million seasonally adjusted rate, the strongest pace since October of 2008. The rate of sales while encouraging, is still off -0.2% from last year despite an $8,000 first time home buyer tax credit and record housing affordability.
Inventory of existing homes for sale fell -0.7% from last month to 3.823 million and is down -14.9% from the same time last year.
The result is that the month's supply of housing is down -4.1% from last month to a 9.4 month supply and is down -14.5% from June of last year.
Without question, there are all positive indicators.
But without a doubt, these indicators do not give the most accurate representation of the housing market in terms of the supply of homes (foreclosures) and subsequently, the month's supply of housing. This is only the eye of the storm.
We know that home values are driven by supply and demand. We also know that in terms of the supply of homes, there are a couple of factors that NAR's numbers do not reflect.
1.) There is a "shadow" or bank inventory of foreclosed homes estimated by some to be as many as 700,000 homes. The banks have not flooded the market with these properties yet.
2.) There were massive foreclosure moratoriums that only recently expired at the end of March. These foreclosure moratoriums have blunted the effect of foreclosures numbers.
3.) According to RealtyTrac, foreclosure filings are actually up 33% from last year.
4.) Many economists agree that unemployment won't peak until mid 2010. Most banking analysts agree there is a correlation between unemployment and foreclosures.
5.) There are billions in loan resets for option-arms and alt-a loans coming due over 2010, 2011, and the first part of 2012.
6.) According to the MBA, a record 12.07% of all mortgages are at least 30 days late.
So while demand for real estate appears to have stabilized due to favorable mortgage rates and tax incentives, the concern is that demand is still insufficient in being able to absorb the number of foreclosures that are about to make land-fall. This means that prices are going to fall further.