Underneath the spectacular home price gains in the Southland this year is a story of supply and demand.
On Tuesday, the real estate research firm DataQuick reported a 4.6% increase month-over-month in the median home price and a whopping 28.3% jump from the same month last year to hit $385,000. That was the highest year-over-year gain for any month in DataQuick's records going back to January 1989.
That jump in the median price came as sales fell 6.2% from May 2013 and were down 2.1% from June 2012. The jump in prices with lower sales indicates that demand is outstripping supply.
During the last housing bust, builders brought new construction to its lowest level since the Great Depression. Then the rapid turnaround caught builders off-guard — and they haven't ramped up their production to anywhere near normal levels.
"Builders are still not putting up enough homes," IHS Global Insight economist Patrick Newport wrote Wednesday morning following news that new home starts declined 10% in June. "Far from it."
Also making supply short: Foreclosures have sank as a percentage of the market, to just 9.1% of resales, eradicating a source of homes that many experts wrongly predicted would glut the market for years.
And supply from current homeowners still remains constrained because many people who own their own homes are unable to sell because they remain saddled paying more on their homes than those properties are worth.
That has lead to an inventory shortage that has kept supply well under the six months that economists consider a healthy balance. The California Assn. of Realtors reported that in June, the supply of single-family homes was just under three months, up slightly from about 2.5 months in May but down from 3.5 months in June 2012.
Demand for homes is robust. Low mortgage interest rates have been driving interest among buyers for some time now, but the recent uptick in rates has probably spurred more buyers to get off the fence and get serious about the house hunt even as it shuts some out.
Investor demand has waned slightly, but still remains extremely strong, particularly among the smaller operators who make up the majority of these kinds of buyers. And to further add to demand, there is a little-talked-about pipeline of people who lost their homes three years ago who now qualify for a mortgage from the Federal Housing Administration.
With affordability still highly attractive for many buyers, home prices are poised to continue rising.