New Home Sales Increase 10 percent in July As Inventory Falls

The U.S. Commerce Departmente reported that new home sales increased by 9.6 percent in July, a strong enough showing that more economists believe that the housing market may have bottomed out. Home sales are still down 13.6 percent from a year earlier. Indeed, there is still substantial weakness in the housing sector:

The inventory of homes for sale fell to a seasonally adjusted 271,000, which would take seven and a half months to sell at the current pace. That is a higher supply of homes than normal, but it is down sharply from a 12 months’ supply earlier this year.

And inventories are falling in part because construction companies are simply not building houses like they were during real estate’s boom years. Credit for builders is still tight, and builders are being undercut in many markets by distressed properties like foreclosures and short sales by homeowners who need to sell.

While this isn’t a strong sign of recovery, the key is the trend. In this respect, we can be cautiously optimistic that housing has bottomed out.