The housing slump caused by the end of the tax credits may be over, with sales of new homes rising 24 percent in June compared to May to an annual rate of 330,000, the U.S. Commerce Department reported Tuesday.

Nevertheless, sales were at their second-lowest rate since 1963 – May’s were the lowest.

“The future is going to be dependent on job growth. There’s no demand because confidence is weak and employment is weak,” says Eric Green, chief market economist at TD Securities Inc. in New York.

Source: Bloomberg, Courtney Schlisserman (07/26/2010)

In the current market, the idea of a housing shortage may be hard to accept. There are simply too many For Sale signs and delinquent mortgages threatening to turn into foreclosures to make a housing shortage seem like a serious possibility.

But the big drop in home construction over the last few years suggests that it could become a real issue.

Home builders must add 1.6 million to 1.7 million housing units each year to accommodate typical U.S. population increases and replace demolished homes.

During the boom years of 2003 to 2006, production far exceeded the historical average, with builders producing a cumulative surplus of 1.3 million units.

That overproduction remained hidden, though, because investors flush with easy money were gobbling up property. Once the easy money dried up and prices headed down, investors were forced to dump properties.

Today, there might be as many as 700,000 empty units above normal levels.

Still, the great underproduction in the past three years is an issue that will need to be reconciled, especially if the trend continues. Once we start seeing new household formation again, a housing shortage is something we won’t be able to dismiss too quickly.

 Home builder confidence reached 22 in May, the highest point since August 2007, on the National Association of Home Builders/Wells Fargo Housing Market Index.

This was the second consecutive month confidence was up, gaining 3 percentage points. Scores lower than 50 are still considered pessimistic.

Analysts said they were surprised by the increase because the home buyer tax credits expired at the end of April.

Weiss Research analyst Mike Larson said the tax credit provided some optimism, but the real driver behind the increase is a sense that the market is actually improving. “Even with the credit in the rear-view mirror, real, underlying demand remains for housing,” Larson said.

Source: The Wall Street Journal, Shara Tibken (05/17/2010)