Months of Supply (New Homes) -- June 2009Once again, the housing market is showing that its worst days may be over.

According to the Census Bureau, the number of new homes sold in June leapt by 11 percent from the month prior.  It stands as the biggest one-month jump in 8 years.

A “new home sale” is when a home in any stage of construction — not yet started, under construction, or already completed — goes under contract, often with a builder.  It’s the opposite of an “existing home sale”.

In addition to surging sales, the monthly supply of new homes fell to its lowest level in 11 years. In our market, where there are not as many new homes as in expanding markets out west or in the retirement areas of the south, this supply is not perhaps as siginificant, but the number is important nonetheless.

Because home values are based on the relative supply and demand for a particular home in a particular area, anytime that demand for homes grows faster than supply, we would expect prices to rise.

Indeed, that’s what we’ve been seeing.  The combination of low interest rates, seller-paid incentives and a first-time home buyer tax credit is bringing buyers into the market faster than new supply can come online.  It’s one reason why home prices have stopped falling across many parts of the country.

It’s also why home buyers may find it tougher to get “a good deal” in real estate later this year and into 2010.  If demand stays high and supplies fall further, sellers should regain the upper-hand in contract negotiations. Brokers are already seeing signs of of this in the number of “low ball” offers that are being rejected by sellers in favor of better offers and the re-emergence of multiple offer situations on well priced homes.

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