Today's Home Sales Report Made Simple

Home sales rose in May, by 2.4 percent, for the second straight month. Good news? Not so fast. Year-over-year sales are still lagging, and home prices are 35 percent down from their 2005 high. And this mediocre news is coming on top of much lower home prices and an $8,000 federal tax credit for first-time buyers. As Ian Shepherdson put it shortly: "Direction good. Pace slow." Here are four points to take away from the housing figures.

1. Maybe This Improvement is Just Seasonal.

Barry Ritholtz pours some cold water on the numbers, arguing that monthly sales always improve in the late Spring and early Summer months because this is when families choose to settle into new homes before their kids go back to school in September. Here's a graph that pretty clearly makes that point, from Calculated Risk:

Since 2005, the height of the housing bubble, each year's home sales fit under the last year's like a Russian nested doll. This is what a popped housing bubble looks like. And we're still about 17 percent below 2008 home prices, according to the LA Times story.

2. Inventory Improving for 10 Straight Months
There is cause for optimism, from the graph guru at Calculated Risk. It shows inventory levels have improved, year-over-year, for ten consecutive months. CR used rising inventory levels in 2005 to call the peak of the housing bubble, so it's important -- and cause of mild optimism -- that we're continuing to take more homes off the market.

3. Mortgage Rates Also Falling Since Last Year
It's also important to note that mortgage rates have generally trended down in the same 10-month period. We're seeing improvements in the housing market -- even as incremental as they are -- on top of mortgage rates at their lowest rates on record.

4. We're at the Bottom, But It's Not a Trampoline.
Where do we go from here? Economists gathered at the WSJ Real Time Economics are largely optimistic that back-to-back home sales increases signify that the bottom is behind us. But just because the housing bubble presaged the Great Recession doesn't mean this news foretells a swift recovery. In fact, many economists worry that recent increases in the mortgage rate (after it fell pretty consistently for almost a year) could snuff out a recovery by stoking even more foreclosures.