Housing Market Hitting Its Bottom

Although many housing statistics are still worse than last year, the decline seems to be slowing down and may even be reaching a bottom. This is what usually happens before the market improves, even though that might not be until next year.

The best news is that pending home sales are up 8.8% over last year. This is an index formulated by the National Association of Realtors that is based on the number of homes that were put under contract to sell, and is usually a leading indicator for future home sales. Pending home sales bottomed in March 2008, at 83, and is now at 93. It peaked in 2005, with an average of 124. (Source: NAR, Pending Home Sales Index)

Existing single family home sales were 4.3 million in August, down 10.6% from last year but it, too, seems to be bottoming out and remains in the 4.2 - 4.4 million range since last September. (Source: NAR, Existing Home Sales)

Home starts continue to fall, with only 895,000 started in August, down dramatically from a peak of over 2 million in January 2006. This has happened only three times in the last 35 years, and each time housing rebounded by the next quarter, catching everyone by surprise.

Although foreclosure rates continue to increase, they are increasing at a slower rate. In August, there were 27% more homes going into foreclosure than the year before. However, this better than earlier months, where there were 50% more foreclosures than the year before. All in all, over 300,000 homes went into foreclosure in August, which is one out of every 413 homes. However, one-half of the foreclosures were in California, Arizona and Florida, with one-third in California alone. (Source: RealtyTrac, Foreclosure Activity Decreases 3% in June, July 10, 2008)

What It Means to You

Although we are by no means out of the woods, at least we are not going deeper into the woods. With new home construction down, the foreclosure rate starting to moderate, and existing home sales chugging along, it looks like the housing market is hitting its bottom. This means that, perhaps by next year, it will show signs of improvement.

Although existing single family home prices are down 10% from their peak in 2005, they will not come anywhere near the 24% decline experienced during the Great Depression of 1929. Since real estate contributes 10% to the economy, it will contribute to a recession this year, but would also be one of the engines to start to lift GDP and employment as we come out of it next year.

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?