Home Inventories Plummet, Pressuring Home Prices Upward

It's no wonder that builder confidence is soaring -- their inventory of homes for sale is depleting at a furious pace.

For the 4th straight month, New Home Sales gained, posting the best numbers since last September's meltdown and handily beating economist expectations.

The available supply of homes is down to 7.5 months nationwide. It's a lot less than that in North San Diego County, down to under 4 months worth of supply.

It's further evidence that the housing market may have bottomed at some point this past spring.

To be sure, the strong housing data is, in part, a reaction to four outside factors:

1.Low mortgage rates
2.An expiring government tax credit
3.Hefty builder incentives
4.A moratorium on foreclosures in states like California

But, buyers are buyers and the clearing out of outstanding inventory provides terrific support for home prices. It also gives them reason to rise.

Coupled with the blowout Existing Home Sales numbers from July, therefore, this months' New Homes Sale report may be a signal that the Buyers' Market is ending and the Sellers' Market is beginning.

If you're planning to buy a home this year or next, it may be time to get a move on. Wait too long, and prices may be up.

Homes Under Contract Soar in April

The number of homes under contract to sell soared in April, climbing nearly 7 percent nationwide versus a month ago.

It's the third straight month in which the Pending Home Sales Index gained and the biggest monthly jump since October 2001, the month prior to the end of the Early 2000s Recession.

A "pending" home sale is one that's under contract to close, but has yet to do so.

The Pending Home Sales Index is an imperfect statistic because not every home under contract makes it to closing, but the data can a reliable indicator of home buyer activity.

It's not tough to understand why homes-under-contract are spiking:

1.There's a $8,000 tax credit for first-time home buyers
2.Conforming and FHA mortgage rates are hovering near 5 percent
3.Home prices are still soft nationwide

These elements are combining to make homes more affordable than they've been in the recent past. Indeed, in April, the Home Affordability Index posted its second highest reading since 1970.

We can't know if home prices will rise or fall going forward, but if Pending Home Sales translate into closed home sales, values will be pressured to rise. This is because each closed transaction takes a home "off the market", reducing the supply of available properties.

If demand rises while supplies fall, sellers regain the upper-hand in negotiations and higher prices are the inevitable result.

An estimated 80 percent of all Pending Home Sales close within 2 months.

New Home Sales - Looking Good.

The national housing market got its third piece of good news in 3 days:

Monday: Existing Home Sales up
Tuesday: Home values appear higher nationally
Wednesday: New Home Sales up
And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it's time to get off the sidelines.

At least, that's what the data is showing us. According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes.

The stimulus package's $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide.

But lest we carried away, we can't forget that February's New Home Sales is still the second-lowest tally on record and that two months of data doesn't define "turnaround".

On the other hand, if the trend continues through the Spring Buying Season, we'll likely look back at Winter 2009 as the low point in housing.

Home Sales Are Up In February

Each month, the National Association of REALTORS® releases a study called the Existing Home Sales report. It's a detailed look at "used" home sale data from all four regions of the country.

Among the key findings of each Existing Home Sales report is something called the "median sales price", the statistical price point at which half of the homes in the U.S. sold for more, and half sold for less.

Last month, the median sales price in the United States fell to $165,400, down 15.5 percent from a year ago.

Nevertheless, just because the median sales price is lower from last year doesn't mean that the housing market is losing steam. The median sales price is just the middle point of all home sales in all U.S. markets. By definition, it groups New York City and Danville, Illinois; Los Angeles and Cheyenne -- markets that have little do with one another.

When median sales prices are falling, it doesn't point to housing weakness, per se -- just that more homes are selling at the lower end of the pricing spectrum than at the higher end.

Going forward, it's believed that a reduction in home supplies is the key to a complete, national housing recovery. It's encouraging, therefore, in a month known for a high volume of new listings, that the number of homes sold kept pace with the number of new homes available for sale.

The current housing inventory stands at 9.7 months, flat from January.

A Missing Key Fact From The Recent Existing Home Sales Report

In reading the headlines this morning, you'd think that last month's Existing Home Sales figure signaled more trouble ahead for the housing market.

Quite the contrary.

Beyond the attention grabbing headlines is the real story; the one that shows -- once again -- that housing market fundaments are coming back into balance.

As home values tick lower, it appears, value buyers are stepping in and snapping up supply. It's true that the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the fact that the number of homes available to buy fell, too.

* Banks have put the brakes on foreclosures
* Economic uncertainty is reducing job-related relocations
* Builders have all but stopped building new homes

The national housing supply is as low as it's been in more than a year.

Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008.

Demand for homes is expected to rise, too:

* The Federal Reserve is trying to hold mortgage rates low
* Fannie Mae is opening its checkbook to real estate investors
* The stimulus package is granting tax credits to first-timers

So, it's not that the headlines are wrong; it's just that they're incomplete.

In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.

Consumer Confidence Fell, Home Sales Rose. Who Would've Thunk?

Consumer Confidence fell this month for the first time in three months, reflecting Americans' concern for the economy, housing, and the financial system.

The reading isn't much of a surprise given our collective exposure to a near-constant stream of negative news. Before long, the reports become a self-fulfilling prophecy.

Despite falling confidence, however, the housing industry appears to be reviving. Sales of existing homes are on the rise and an increasing number of homes are under contract to sell.

And, if these statistics seem out of place, consider the external forces that are accompanying this "down" economy:

* In some markets, home values have plummeted to early-2000 levels.
* Government intervention has brought mortgage rates to near-5 percent.
* Congress is pledging key support to housing and mortgage markets

These points can't be captured in confidence surveys which, by comparison, ignore facts and focus on big picture behaviorla questions like "Do you think you'll be better off a year from now?" and "What's your attitude toward buying major household items?". It's useful information for economists, but not so much for home buyers.

Anecdotally, a lot of the country's housing markets have already started their recovery. Couple that with the natural momentum of Spring Buying and the stimulus package's proposed first-time home buyer tax credit and you can clearly see the disconnect.

Just because confidence is down doesn't mean that home prices will be, too.

Did We Just See Signs Of A Housing Recovery?

Don't let the plunging median sales price fool you -- December's Existing Home Sales data has home sellers smiling.

Just one month after falling below the 5-million unit trend line, sales volume roared back by 300,000 homes in December, surprising housing analysts and making a case that this spring's Buying Season could be more competitive.

Falling home prices helped fuel home sales. Nationally, the median sales price -- the point at which half of all homes sold for more and half sold for less -- was $175,400, down $32,000 from last year.

However, the most important part of December's Existing Home Sales report isn't making headlines.

At December's sales pace, it would now take 9.3 months to exhaust the existing home supply.

Last month it was 11.2 months. This means that buyers are competing to purchase fewer homes which, in turn, puts upward pressure on home prices. A normal real esatate market has around a 7 month supply available for sale. If the trend continues, it won't be long before we drop under that 7 month supply line.

This is Supply and Demand at its most basic definition.

Economists have long said that the keystone of housing's recovery will be rebalancing in home supply. Coupled with the all time low in housing starts, December's Existing Home Sales data signals potential future strength.

National Housing Inventory Fell In December - But That's Only Half The Story

Home prices are largely based on Supply and Demand.

* If demand outweighs supply, home prices rise
* If supply outweighs demand, home prices fall

It's good news for home sellers, therefore, that "used" homes for sale fell 6 percent nationally last month. Less supply often means higher prices.

Of the 29 metropolitan areas tracked in real estate brokerage firm ZipRealty's survey, only Philadelphia showed an increase.

But the survey isn't perfect. For example, it doesn't track the demand side of the equation -- buyer activity.

Anecdotally, November and December are slower for buyer foot traffic than, say, March and April. December's drop in supply, therefore, may reflect the expectation of reduced buyer interest.

In addition, the ZipRealty survey ignores the supply of newly-built homes, and of foreclosed properties. In some cities, that can amount to a quarter-percent of the market supply or more.

And lastly, the survey addresses the nation and not the nation's neighborhoods. This is an important distinction because real estate is not a nationwide market, nor is it even a citywide market. Real estate is highly local and responsive on a neighborhood-level.

National surveys rarely capture that point.

New Home Sales Strengthen

Despite turmoil on Wall Street, the housing sector continues to deliver good news.

Last month, led by a 22 percent surge from the West Region, New Home Sales rose 2.7 percent over August.

A "new home" is a newly-built residence, never before lived in. New homes are usually built and sold by real estate development companies and their respective marketing firms.

The surge in New Home Sales volume is consistent with the other good news we've seen from the housing sector. It marks the 4th positive signal in the last two weeks.

October 8: Homes under contract to sell surge 7.4 percent
October 23: Foreclosed homes fall 12 percent in September
October 24: The supply of "used homes" falls to an 8-month low
October 27: The supply of new homes falls by 7 percent

However, it can't be ignored why housing is showing a statistical improvement. The main causes are two-fold:

* Banks are getting better about selling foreclosed homes
* Builders are keen to dump their excess inventory

Both of these factors drive down home sales prices nationwide which, in turn, draws value-seeking home buyers back to the market. In addition, because the number of active sellers dwarfs the number of active buyers, today's home seekers enjoy a tremendous amount of negotiation leverage, making real estate even more attractive.

But, as with everything in business, markets seek balance. As home supplies dwindle, buyers' ability to negotiate sales prices and closing costs will fall. It's Supply and Demand -- as supplies drop, relative demand rises, and prices rise with it.

In every American neighborhood, homes that are priced "right" are selling quickly. And now that banks and builders have figured out the formula, more homes are going under contract than at any time since 2007.

Much of the current economic climate is being blamed on housing. If the data is accurate, though, we can infer that the climate may not last much longer.

Home Sales Are Up, Home Supplies Are Down -- This Is What A Recovering Market Looks Like

Statistics are what you make of them, but sometimes, they can provide good perspective.

For example, from its peak in 2005 to its trough in late-2007, the number of "used" homes sold nationwide plunged.

* In 2005: Roughly 7 million homes sold annually
* In 2007: Roughly 5 million homes sold annually

Through all of 2008, though, Existing Home Sales volume has been essentially flat. Some months up, some months down, but always hovering near the 5 million unit mark.

The data from September is no different.

For the 13th consecutive month, the number of home resales nationwide straddled the 5 million benchmark, clocking in at 5.18 million units. This tells us that everyday Americans are still buying and selling real estate at a fairly steady clip -- despite what the news keeps telling us.

Versus August, September sales volume grew by 5.5 percent.

Now, couple this with two other data points and we can see that the housing market is showing multiple signs of strength:

* The national home supply is now down to 9.9 months
* The number of homes under contract is up 7.4 percent

Again, though, statistics are what you make of them. Just as there are positive signals about real estate, there are negative ones, too. The credit markets are one example of that.

But, either way, with a full year of stable sales volume behind us and stories of recovery in beat-up markets like San Diego and California as a whole, we can't ignore the idea that housing may be done trolling its bottom.

It takes willing buyers and willing sellers to turnaround a market. It appears that housing may have both.

Pending Home Sales Are Up - More People Are Buying Houses Again.

Buyers are returning to the housing market.

Each month, The National Association of REALTORS® tracks homes under contract to sell, but whose closing has not yet happened. It calls them "pending sales" and publishes a monthly report to quantify them.

The Pending Home Sales report is important because it's meant to predict future home sales activity. History shows that 80 percent of homes under contract will "close" within 60 days, and most of the rest will close within 120 days.

If Pending Home Sales are up, it's believed, actual home sales will be up, too.

In August, Pending Home Sales jumped 7 percent from the month prior, returning to levels not seen in over a year.

The report's strength suggests that buyers are returning to the housing market, continuing the trend that started in March. This is tremendously good news for sellers because more buyers on the hunt means more demand for homes which, in turn, leads sale prices higher.

The Pending Homes Sales report is not a perfect predictor, however. For one, it's not measuring an actual sale -- just the expectation of one. In addition, it only accounts for "used" homes, ignoring new construction.

But that aside, the strong uptick in August tells us that home buyers are re-engaging at a quickening pace and finding that "now" is a good time to buy real estate. When buyer demand rises, the real estate market as a whole isn't usually that far behind.

What's Good for Home Sellers is Bad for Home Buyers

In August, home builders broke ground on the fewest number of homes since January 1991.

It was the 16th straight month in which Housing Starts declined.

Studies have shown that in order to accomodate the increasing number of household formations and the razing of old houses, we need between 1.3 to 1.4 million new homes built per year. We are on line to build less than 1 million.

But, although the press labels these statistics indicative of a recession, home sellers nationwide quietly applaud them.

With fewer new homes coming on the market, home sellers are finding that there's less competition for buyers, helping them to command higher prices for their homes.

It's Supply and Demand in its most basic form.

But that's not all that home buyers have to worry about. The most recent Existing Home Sales report showed an increase in sales nationwide, plus a reduction in the number of single-family homes for sale.

Again, Supply and Demand. Good for sellers, bad for buyers.

However, we should keep in mind that real estate is local. What we see in national and regional trends are not as important as what's happening in your town, your neighborhood, and your street. In San Diego for instance, median prices are still coming down, but lower end homes are experiencing stability and increased sales. A lack of sales in the higher end are showing skewed results overall.

But, if we learn one thing from the chart above, it's this: builders are rational.

If homes won't sell, builders will stop building them. And, sooner or later, the market -- and home prices -- will catch up.

According to the Latest Data, Home Prices May Have Already Touched Bottom

According to the June 2008 Case-Shiller Home Price Index, home prices in 15 of the 20 largest U.S. real estate markets either improved, or showed growth from the month prior.

This is the fourth straight month in which that happened which means that a national housing recovery may already be underway.

Now, it's worth stating that all real estate is local and that there's no such thing as a "national real estate market", but for home buyers looking to to maximize their negotiation power to get the best possible "deal", spotting trends like this before the media does is a good thing.

Even though San Diego didn't make the turn-around list, there is evidence that our market is falling less and activity is increasing for home purchases in the lower price ranges, which in turn will affect more expensive homes down the road.

In addition, San Diego showed a minimal decrease month over month, with some areas of San Diego actually showing an increase in home prices. This once again demonstrates the local nature of home prices, even down to neighborhoods within zip codes.

So far, only Bloomberg and a few others have chosen to highlight the positives from the otherwise-negative Case-Shiller report. By contrast, most publishers are focusing on annual home price figures which show a hefty drop of 15.9 percent.

We shouldn't dismiss annual trends because they're helpful in the theoretical sense, but for real, live home buyers trying to identify trends and market bottoms, it's the month-to-month data that matters most.

After looking at 4 consecutive months of Case-Shiller data, the month-to-month data appears to show that home prices have stabilized in most major markets. And, in some, they've already started to recover from their lows.

The Median Home Sales Price Fell Nationally, But National Data is Irrelevant

Each month, the National Association of Realtors® releases a study called the Existing Home Sales report. It's a detailed look at "used" home sales data from all four regions of the country.

One of the key findings in each Existing Home Sales report is something called the "median sales price", the statistical price point at which half of the homes in the U.S. sold for more, and half sold for less.

Last month, the median sales price in the United States fell to $215,100, off 6.1 percent from a year ago.

But, just because the median sales price is falling doesn't mean that housing is necessarily in the doldrums. Real estate is tied to local markets and the national statistics rarely make sense when applied to any given city.

For example, the $215,100 median sales price for the nation is as outrageously inappropriate as a sales price to New York City as it is to Fargo, South Dakota. In fact, it's the very definition of "median" that discounts its ability to reflect the health of the national housing market.

If large numbers of homes are sold and the price tags are high, the median sales price will trend higher. Conversely, if large numbers of homes are sold and the price tags are low, the median sales price will trend lower.

The median is just the middle point.

The falling median home sales price in June may be indicative of first-time home buyers outnumbering luxury ones, or banks successfully unloading homes in foreclosure. And this idea may be supported by the data which shows that the West and Northeast led the decline.

So if you're trying to gauge the health of your local real estate market, consider asking a local real estate agent for help. A skilled agent's analysis will be infinitely more practical and useful than the national data pumped out by the industry trade group.

How to Interpret the Pending Home Sales Index

When home sellers accepts a contract on MLS-listed property, the property's official status changes from "Active" to "Pending".

By measuring the number of "Pending" homes nationwide, the National Association of Realtors® publishes its once-monthly Pending Home Sales Index.

The real estate industry group positions the report as a predictor of future home sales activity, stating that 80 percent of homes under contract will "close" within 60 days, and most others will close in within 120 days.

But, although using the Pending Home Sales report as a crystal ball may be its intended use, it may not its best use.

This is because of the index's methodology:
* It doesn't measure new construction homes
* It doesn't track For Sale By Owner properties
* Its sample set covers just 20 percent of MLS transactions

In addition, in a tough mortgage climate such as the one we're in now, a greater percentage of pending sales will fail to close at all because of lack of financing.

The Pending Home Sales Index still has its place, however -- it's a terrific look at the buy-side demand for homes.

When the Pending Home Sales Index is rising, we can infer that more buyers are in the market for homes and this is a signal of market strength. After all, pending sales can't happen unless there are buyers out there. And with more buyers competing for homes, home prices tend to rise.

This is why the June's Pending Home Sales report is so intriguing.

In June -- for the second time in three months -- the Pending Home Sales Index posted a large gain even as economists were calling for a loss. The inference here is that buyers are not only finding good value in all four regions of the country, but are willing to make bids on homes listed for sale.

Now, again, the uptick doesn't mean that the pending sales will necessarily close, but it does tell us that more home buyers are finding "now" to be a good time to buy a real estate.

That sort of insight is what make the Pending Home Sales Index worth tracking. When buyer demand is rising, the real estate market isn't usually far behind.