The pace of housing-market activity enjoyed a big jump in July – rising for the fourth straight month – yet the inventory of unsold homes remains stubbornly high.
July saw a 7.2 percent surge in sales volume for previously owned homes, compared with June. Home sales reached an annual pace of more than 5 million units for the first time since the financial crisis deepened last September.
But the number of homes for sale stood at 4.1 million, up from 3.8 million in June.
Housing analysts say this unusually high level of inventory sends a signal that's part good news, part bad.
"This suggests to us that more homeowners are willing to test the market [and put their homes up for sale], as conditions appear to have stabilized," economists at Goldman Sachs wrote to clients. "If so, this is obviously good news in terms of a read on sentiment, but it also serves as a reminder that there is probably quite a large pent-up supply on the sidelines."
In fact, 29 percent of homeowners are at least somewhat interested in putting their houses on the market, according to a recent survey by Zillow.com, the online provider of housing-market information.
This large "shadow inventory" has grown during the past two years as many potential sellers wait for a better market conditions.
Meanwhile, the official "for sale" inventory of unsold homes is the equivalent of 9.4 months' worth of sales, down from an 11-month supply a year ago, the National Association of Realtors (NAR) estimates.
The association also reported that the median sales price in July was $178,000, down from a month before but up 8 percent since January.
The rise in sales volume is a very positive sign, but comes partly because of an $8,000 tax break for first-time home buyers that expires in November, analysts say.
Moreover, for home prices to fully stabilize, the inventory numbers will need to show a better balance of supply and demand. Jan Hatzius, chief US economist at Goldman Sachs, forecasts that home prices will continue falling into next year, perhaps by another 10 percent.
Reaching a bottom in home prices is important for the whole economy – affecting everything from consumer confidence and household wealth to the losses that banks face when homeowners default on loans.
The NAR median price isn't the only indicator that has recently shown signs of improvement. The Federal Housing Finance Agency's home price index, for instance, has been edging upward slightly this year.
But some other indexes show price declines continuing. Analysts warn against reading too much into price indexes during such an unusual period in the housing market. Rather, they say, watch a range of indicators to read housing-market health, including the pace of traditional sales, foreclosures, and the for-sale inventory.
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