Small Housing Supply Better for Sellers Than BuyersB

Home supply fell in August 2008, helping to place upward pressure on home prices

The August Existing Home Sales report was released last Wednesday, showing a decline in the number of homes sold nationwide, and a reduction in the median sales price.

Not surprisingly, the media singled these two statistics out, playing them as a big negative.

They're not.

The decline in sales wasn't good, but it wasn't terrible, either -- sales were actually up in half of the regions around the country.

And, citing "median sales price" is somewhat pointless because median sales price only measures the price point at which half the homes sold for more, and half sold for less.

No, it's the third statistic in the report that deserves as much -- if not more -- attention that the previous two. According to yesterday's press release, the national home supply is decreasing.

This is terrific news for home sellers.

The median home sales price fell in August, but it is not an overly important statistic

In its report, the National Association of REALTORS said that the nation's existing supply of homes for sale fell by 7 percent in August.

At the current pace of sales, that represents a 10.4-month supply, down from 10.9 months in July. With a reduced supply of homes for sale, all things equal, home prices would increase.

This is Supply and Demand in its most basic form.

Economists and experts have long noted that reducing the housing supply is one of the key elements to a sustainable housing recovery and we've seen several indications that this is happening, including builders not building as much.

Longer-term, this is good news for home sellers because a reduction in housing supply tends to lead to higher prices.

(Images courtesy: The Wall Street Journal Online)

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