Nationwide Home Sales and Prices Rise

First the Good News

More green shoots. Sales of new homes surged 9.6% in July. This is the fourth-straight monthly increase. Home prices in major U.S. cities rose for the second straight month in June in the latest sign the housing market may be steadying after years of declines.

The S&P/Case-Shiller index for home prices in 20 major cities in the three months ended June 30th was up 1.4% from its level in the three months ended May 31st. It was the first time the index rose two months in a row since mid-2006. Prices gained in 18 of 20 markets, but were still down 31% from their July 2006 peak.

The additional good news for home builders and sellers buried deep in the news is the fact that there were 271,000 new homes for sale at the end of July, down more than 3 percent from May. At the current sales pace, that represents 7.5 months of supply — the lowest since April 2007. The decline means builders have scaled back construction to the point where supply and demand are coming into balance

"Momentum matters," said Robert Shiller, the Yale University economist who helped create the index. "This is a sudden break in momentum." Robert also said "The really important things [affecting home prices] are unemployment and momentum.” I agree. I've been through three real-estate booms and bust in my lifetime. And any person with experience will tell you the three biggest variables impacting home-buying is Jobs, demographics and interest rates.

Now the Not So Bad News

So, is housing heading for a new boom? No, at least not anytime soon. Recent home-price gains have been driven, largely, by competition between first-time buyers and investors offering to pay cash for distressed properties. Demand also has been boosted by government intervention that helped drive mortgage rates to half-century lows in the spring and a tax credit of up to $8,000 for first-time home buyers. So, my forecast along with other "experts" is this momentum is not sustainable until employers start hiring again.

Now if you have been considering buying your first home and you are one of the 90% employed...my advice is...you need to act by November month-end to get the $8,000 cash. Read my "First-Time Buyers Get Gifts" article.

Forget about thinking prices will now rise back to those 2006 levels, anytime soon. Remember the July 2006 prices were a bubble fueled by easy money, little money down, no-document loans, aggressive sales practices, and extra high appraisals. In a poor economy, with low new job creation, I would expect more price declines in those areas which had the largest increases.

Unlike stocks real-estate is impacted by local market economic conditions. So let us know how the real-estate conditions are in your area by making a post.