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Will good news on U.S. housing weigh on housing?

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, Aug. 21, 2012.

JONATHAN ERNST/REUTERS

Wednesday's report on U.S. existing home sales has brought a steady stream of upbeat commentary from economists. Little wonder: Sales rose 7.8 per cent month-over-month, to 4.82 million, blowing past expectations.

Perhaps even better, the percentage of so-called distressed sales – homes that have been foreclosed – accounted for 22 per cent of sales. That's down from 24 per cent in July and 31 per cent last August.

U.S. homebuilding stocks rallied on the news. PulteGroup Inc. rose 4.3 per cent, D.R. Horton Inc. rose 4.1 per cent and Toll Brothers Inc. rose 3.2 per cent.

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Here are serveral reactions:

Chris Jones , Toronto-Dominion Bank: "As access to credit improves and the Fed's MBS purchases put further downward pressure on interest rates, the housing recovery will be a significant driver of growth in 2013."

David Onyett-Jeffries , Royal Bank of Canada: "This overall improvement in the pace of sales, combined with firming prices, shrinking housing inventories and decreasing market share of distressed sales support our view that conditions in the U.S. housing market are stabilizing and we anticipate that the gradual return to more normal market conditions will continue over the forecast horizon."

Sal Guatieri , BMO Nesbitt Burns: "Great affordability, pent-up demand and strong investor interest in rental units are driving the market, and QE3 can only help by reducing mortgage rates further."

Andrew Grantham , CIBC World Markets: "Today's data are another indication of improvement in the U.S. housing market which, for really the first time post-recession, is becoming a positive for economic growth."

It's not all sunshine and lollypops, though. As Bill McBride at Calculated Risk pointed out, there is still a big problem ahead: Inventory. Sure, the number of unsold homes has fallen to 2.47 million units as of August, down more than 18 per cent over the past year. But as prices rise, more people are likely to sell their homes.

"I expect that the largest year-over-year declines in inventory are now behind us," he said. "It is very likely that each reported price increase will be met with more supply from sellers 'waiting for a better market.' I don't expect prices to fall to new lows in most areas, but this new inventory will probably limit any price increases."

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That's similar to what Yale University professor – and noted housing market authority – Robert Shiller said in a recent interview on National Public Radio: "There's a lot of people who are thinking, you know, if the prices would just come up a little bit, I'd sell."

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