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San Diegans purchased about 48 percent more resale homes in March than they had a year prior. Pretty impressive, considering the economic circumstances. Apparently the combination of somewhat reasonable home prices and ultra-low mortgage rates has been enough to lure buyers into the market despite the severe downturn in the economy. (What happens when those artificially-suppressed mortgage rates rise to more natural levels is a topic for another column altogether).

Even as demand grew in March, supply diminished. Resale inventory was down 26 percent from a year prior. As a result, the months-of-inventory figure hit a multi-year low: there were 5.2 months’ worth of resale homes available at March’s pace of sales.

This all seems pretty positive for the housing market. And, taken by itself, it is. But looming over the supply and demand picture is the fact that foreclosures continue to pile up at a record-setting pace.

There are many theories as to why inventory is shrinking even as the number of homes in foreclosure continues to build. The most plausible-sounding and least conspiratorial of these is that the system for processing foreclosures is simply overwhelmed. Other theories involve banks waiting to see what new bailouts are on the horizon or just trying to keep from flooding the system with inventory.

I don’t know what the right answer is. But whatever the cause, there are a lot of properties in foreclosure that have not yet hit the market. If and when they do, they won’t just be regular inventory, but the dreaded “must-sell” inventory that tends to drive down prices.

So while home sales and inventory may seem quite healthy on the surface, it’s difficult to get too confident in the housing market until this glut of pent-up foreclosures is dealt with. I’ll put up some foreclosure charts next week.

In other news, I will be discussing the housing market on NPR’s “These Days” on Monday, April 13th at 9AM. I imagine that the segment will be archived here.

— RICH TOSCANO

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