The housing market is in need of new homes for sale, according to a report released today by the National Association of Realtors. It said that an appropriate balance between a rise in prices and new home construction could keep the current housing recovery on track.
Existing home sales, the biggest chunk of the housing market, rose to a five-year high in 2012, though existing home sales for the month of December surprised economists and dropped 1 percent.
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The drop in December sales was in part because of the lack of homes on the market. At the current sales pace there is a 4.4-month supply of homes for sale, the lowest since May of 2005 - near the peak of the housing bubble. A six-month supply is considered normal.
The tight supply also means that homes are selling at a higher price. The national median price was $180,800 in December, which is 11.5 percent above December 2011. This is the 10th consecutive month of year-over-year price gains. The last time there was a similarly sustained price gain was in August 2005 to May 2006, also in the midst of the housing boom.
A rise in prices encourages new homes to be put on the market. As prices rise, more homeowners find themselves no longer owing more on their home than they are worth.
So far, home builders seem to be responding to the tight supply. A report last week said that new housing starts jumped to their highest level since 2008, a move that creates jobs stimulates the economy.