By now we have all read the headlines about new home sales increasing by 9.6 percent in July to a 433,000 annual rate, which easily beat the consensus expected rate of 390,000 (click here for all of the facts and figures).
Somewhere buried in the story is a brief mention of the supply of new homes decreasing to 7.5 months, which is the lowest level since mid-2006. As a matter of fact, the total supply of new homes fell to 271,000, which is the lowest level in 16 years. The dwindling supply of new homes was bound to happen eventually given the almost complete shutdown of the new home industry in the last three years (building permits have been at record lows).
So, as I recall my Econ 101 class at Arizona State University (also known as the "Harvard of the Desert"), simple economics tells us that when demand exceeds supply, prices will increase. I think we are at a point where inventory is so low and demand is picking up ever so slightly that we will begin to see modest price increases in most markets. Price stabilization is the key to the forthcoming housing market recovery. Of course, the key to price stabilization is balanced demand and supply, which appears to be right around the corner.
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