Home Sale Contracts Rose in April - Could Housing Bust Be Bottoming Out?

The Pending Home Sales Index, which tracks the number of home sale contracts signed, was 88.2 in April, a 6.2% rise from the prior month. Although it is still 13% lower than a year ago, it’s the highest index since last October, a sign that the decline in homes sales may be bottoming out. Lower home prices are now drawing buyers into the market, a sign that the market is stabilizing.(NAR, Home Sales May Rise Moderately, June 9, 2008) Similarly, the increase in foreclosures (though still very high) seems to be plateauing. May's foreclosures were up 48% year-over-year - better than February's 60% increase, and much better than the 97% y-o-y increase seen in December. In other words, even though May's foreclosures were 7% greater than April's, and 48% greater than last year, the rate of increase is slowing down. (Source: RealtyTrac.com, Foreclosure Activity Increases 7% in May, June 13, 2008)

Since the Pending Home Index tracks contracts, it seeks to predict home sales in the next 90 days. An uptick would be welcome, since April's actual home sales rate dropped to 4.89 million - down 16% from a year ago and down 30% from the 2005 high of 7 million sales. Similarly, April's inventory of homes for sale was at 11.2 million, a 30% increase over last year.(National Association of Realtors, Existing Home Sales)

What It Means to You

Price declines are only at about 8%, nowhere near the 24% decline experienced during the Great Depression of 1929. Prices probably won't fall as far, however, since low prices are already drawing buyers back into the market.

However, the continued slump in real estate, which contributes 10% to the economy, is putting downward pressure on GDP and employment. Watch for the Final GDP Report, due June 30th to see if the economy is in further danger of a "technical" recession.The housing decline has already caused a significant stock market correction, with most experts agreeing we are in a bear market.

More on Real Estate and the Economy

• How Does Real Estate Affect the U.S. Economy?
• Definitions of Commonly Used Real Estate Terms
• A Primer on Interest Rates

If you are selling your home, here are some great tips from the About.com guide to Homes, Elizabeth Weintraub.

• Selling in a Falling Market
• Avoid Mistakes When Selling in a Slow Market
• When Is the Time Right to Reduce Price?