KEY DATA: New Home Sales: +2.9%; Existing Home Sales: +1.1%; FHFA Prices (Over-Year): +6.8%:

IN A NUTSHELL: “The slowing in the housing market may be ending as demand is picking up and prices keep surging.”

WHAT IT MEANS: The housing market has been a puzzle recently, with sales and starts tumbling. That may no longer be the case. New home sales jumped up in May and the gain was on top of a sharp upward revision to the April sales pace. The rise in purchases over the year was nearly 9%, indicating that conditions are indeed getting better. That said, the increases were not well distributed across the country. The robust surge in sales in the West and strong gain in the South were almost entirely wiped out by double-digit declines in the Northeast and Midwest. As for prices, they hit record highs. The nearly 17% rise from the May 2016 median price level undoubtedly overstates the gain, so let’s don’t get too carried away. Nevertheless, supply remains limited and it is likely that the pressure that has been building for so long on prices will not go away anytime soon.

Earlier this week, two other reports on housing were released. The National Association of Realtors released their report on existing home demand and it too showed that demand is rebounding. Unlike the new home numbers, sales rose across the nation. And similar to the new home market, a lack of supply is keeping pressure on prices, which were up nearly 5% over the year.

There are many different reports on home prices, which is difficult to quantify given the changes in prices don’t necessarily measure the rise or fall in the cost of the same unit. Still, all the indices are showing the same thing: Prices are on the rise. The Federal Housing Finance Agency’s index posted another sharp increase in April and over the year. This index had decelerating during most of 2014 but has been on a slow but steady rise since.

MARKETS AND FED POLICY IMPLICATIONS: I don’t know how many times I have written that if it isn’t for sale, it is hard to buy and the housing market is clearly suffering from a lack of inventory. Just today I was cold-called by a realtor asking if I was interested in selling my house. That is how desperate things have gotten. Locational mobility has declined sharply and even those whose homes are now above water are hesitant to sell. Builders face cost and regulatory issues and those factors, plus more rational lending practices, is keeping new construction down. There is no simple solution to the problem, so don’t expect housing sales to surge. What should continue to rise are prices. For the Fed, that is good news as it will keep non-food and energy consumer costs from decelerating further and allow for additional rate hikes this year, assuming the economy keeps growing at a moderate pace. Investors, though, don’t seem to worry about economic fundamentals, so what, if anything, will slow the markets is unclear.