Price up, supply down.

Existing-home sales fell 1.7% to a seasonally adjusted annual pace of 5.27 million, the National Association of Realtors said Tuesday. Sales declined 2.2% compared with a year earlier, marking the 16th consecutive month of annual declines in sales.

The spring selling season is crucial because about 40% of the year’s sales take place in March through June. Falling sales during most of this period have puzzled economists. They struggle to explain why the housing market has remained soft while the rest of the economy has been booming.

Borrowing rates have fallen to their lowest levels in two years, wages are rising and unemployment is at a 50-year low.

“It doesn’t make economic sense,” said Lawrence Yun, the NAR’s chief economist.  – WSJ

The housing market is all gummed up and still suffering from the big supply shock we have written about — homes bought up and beaten into rentals and rising costs of construction.

First-time buyers can’t afford homes even at these interest rates.  We suspect a demand shock — beginning with the retreat of foreign buyers — will start to show up in the data, which should bring prices down.

See here and here for our analysis on the housing market.