New home sales have started 2013 at the strong pace we expected given the strength we saw at the end of 2012. This clearly reinforces the view that housing is in a recovery, and pent up demand is fueling stronger sales and prices even in an environment fixated by fiscal cliffs and sequestration.

While data last week showed that home builders are starting more homes, the inventory data show that supplies are very limited as builders are not able to keep up with recovering demand. At the same time, we are seeing existing home sales limited by low levels of supply as well. That’s why prices are showing appreciation, and with home prices appreciating, more would-be shoppers feel compelled to get off the fence.

At the January pace of sales reported by the Commerce Department, we expect to see even stronger numbers as the year progresses. The traditionally strong spring and summer selling season is likely to return larger numbers of buyers than we have seen over the last five years when home prices were falling.

Total home sales across existing and new are at levels well above long term historical averages. Part of the growth we expect to see in new home sales should come from new homes recovering market share lost from existing homes over recent years due to the historically low level of new construction while foreclosures were at their peak.