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Housing resale volume increased in July, ending up 16.4 percent higher than it was last July. At the same time, resale inventory declined to end up 9.7 percent below where it was a year ago.

So both elements of “months of inventory” calculation — which measures how much supply there is in comparison to demand — improved to 6.3 months of supply. In addition to being a vast improvement over the 12 months’ worth of inventory seen late last year and early this year, this reading actually beats out either of the prior two Julys. And 6 months’ worth of inventory — just a hair’s breadth away from the July reading — is considered by many to be a “normal” market.

So is normalcy returning to housing? For the answer to that question I direct you to the latest writeup on monthly foreclosures. As positive as the improvement of overall supply and demand is, it doesn’t seem positive enough to outweight the negative effects of all those forecslosures piling up and waiting to be sold.

Normalcy does not appear to be forthcoming until foreclosure activity comes back to earth. And I’m not talking about a temporary decrease in official foreclosure filings that could be the result of, I don’t know, a “foreclosure sanctuary” or something like that. I’m referring to a purging of bad loans such that the vast majority of remaining homeowners are willing and able to make their mortgage payments.

The pickup in volume is a good thing for the market, but it alone will not be enough to restore normalcy until the lending system itself has become healthy once again.

— RICH TOSCANO

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