Is that headline for real?

Updated Jun 22, 2012

In my daily trolling for economic indicators this morning, I stumbled upon the following headline of a news release from the National Association of Realtors: “Existing-Home Sales Constrained by Tight Supply in May, Prices Continue to Gain”

Seriously? Sales of existing homes fell not due to low demand but rather to lack of supply? That’s NAR’s story and it’s sticking to it.

In a housing market that has been declining for about five years and has been bumping around the bottom for about three years, this would seem to be very encouraging news. But before you get excited over an impending housing boom, there are a couple of points to consider.

First, this is NAR’s expert analysis of the data, not data itself. “The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand,” said NAR Chief Economist Lawrence Yun. “The normal seasonal upturn in inventory did not occur this spring. Even with the monthly decline, home sales have moved markedly higher with 11 consecutive months of gains over the same month a year earlier.”

NAR knows its stuff when it comes to home sales, so who are we to argue? But there’s another important point to weigh. Although NAR says there are broad-based shortages of lower-priced homes in all regions except the Northeast, the places where inventory is particularly tight in all but the upper end of the price range is the West and much of Florida, NAR says. And why is that? It’s because foreclosures can’t come fast enough to satisfy demand. In fact, NAR pointed out that Realtors in Western states have been calling for an expedited process to get additional foreclosed properties onto the market.

So bargain hunters abound, which isn’t surprising due to record low mortgage interest rates. But that doesn’t necessarily translate into near-term robust demand for construction of new homes. Data from earlier this week was mixed with permits for future construction up strongly in May over April but actual housing starts down. Still, compared to a year ago both measures are up sharply.

It’s getting better all the time.