Supply of homes for sale increases

 Existing home sales rose modestly in February and more people listed homes for sale, the first sign of a potential turnaround in a supply crunch in some markets.

Home sales rose 0.8 percent in February from January to a seasonally adjusted annual rate of 4.98 million, 10.2 percent above last year’s level, the National Association of Realtors said Thursday.

The sales rate was the highest since November 2009, when a federal tax credit propped up home sales.

A more important number in the report may be the supply of homes for sale. That rose to 4.7 months, at the current pace of sales, up from 4.3 months in January, NAR says.

The increase in supply is the first of any real significance for more than two years, says Paul Diggle, economist for Capital Economics. While too soon to say that the trough in supply is past, “We get the sense that it’s close,” he says.

Historically, Realtors have considered a six-month supply to be balanced between buyers and sellers.

Even if the inventory crunch is on the verge of easing, “it’ll be years, not months,” to get it back to more normal levels, says Jed Kolko, chief economist for real estate website Trulia. That’s because inventory is so low and new home construction, while picking up, hasn’t yet caught up to the pace of new household formation.

February’s uptick in supply “may be the first hint of a trend or it may be a blip,” Kolko says.

Much of the increase in total inventory, up almost 10 percent to 1.94 million homes, was seasonal, says Patrick Newport, economist at IHS Global Insight. Typically, inventory rises about 6 percent in February.

Even with the increase, February’s inventory of single-family homes for sale was at an 18-year low, he says.

The low inventories are adding up to rising prices, multiple offers and a slowdown in sales in some markets.

In February, California’s single-family home sales were down almost 6 percent from a year earlier, in part because of listing shortages, the California Association of Realtors says. California’s supply of single-family homes for sale stood at 3.6 months in February.

In parts of the Silicon Valley and San Francisco, more homes are selling even before they hit the multiple listing service, says Rick Turley, president of Coldwell Banker in the San Francisco Bay Area.

He estimates that off-market sales are running at 25 percent or more in Palo Alto and Menlo Park. Without such tight inventories of homes for sale, they’d be 2 percent to 4 percent of sales, he says. Multiple offers are also common.