Is the Housing Market Stabilizing?

Best time to buy or sell depends on key factors
Monday, March 05, 2007
By Dian Hymer Inman News

According to the National Association of Realtors (NAR), the housing market could be stabilizing after months of rising inventories, meager home sale activity and soft prices.

The Pending Home Sale Index, which is a leading indicator for the housing market, rose 4.9 percent in December compared to November. This is the largest monthly increase since March 2004 when the index rose 6.9 percent compared to the previous month.

The December pending sale level was still 4.4 percent lower than it was a year ago. However, inventories of homes for sale -- which peaked at an all time high in July of 2006 -- have been shrinking.

The Pending Home Sale Index is based on new sales that have not yet closed. A listing is pending when a purchase contract has been signed by all parties. Closing takes typically 30 to 60 days.

According to NAR, the improvement in the pending sale index was broad based. It increased 8.1 percent in the Northeast, 5.3 percent in the West, 4.3 percent in the South and 3.2 percent in the Midwest.

It's too soon to tell if the recent increase in pending home sale activity is a trend toward stabilization or merely a fluctuation. A lot depends on interest rates and on the health of the overall economy. Another key variable is the unsold housing inventory; that is, the number of unsold listings.

It's typical for the housing inventory to diminish at the end of the year. It often doesn't build significantly again until March or April. The true test of the health of the market won't be clear until later in the year. The next Pending Home Sale Index will be available on March 6 and will be available online at http://www.realtor.org/research/index.html.

NAR reports are useful, but you need to focus on the local scene if you are thinking of buying or selling this year. For example, even though now is not the typical home-buying season, buyers in the San Francisco Bay Area aren't waiting until spring to start house hunting.

Due to the time of year, the inventory of homes for sale in some East Bay neighborhoods is so low that buyers have to compete to buy a home. A common complaint from real estate agents in the area is that there aren't enough listings coming on the market to satisfy the demand.

HOUSE HUNTING TIP: To find out what's happening to the housing market in an area where you want to buy or sell, talk with local real estate agents. Find out how many listings are on the market in the area? How does this compare with the inventory level of last month, six months ago and a year ago? How long is it typically taking listings to sell? Is the time lengthening or shortening?

Are homes selling with multiple offers? If so, this usually indicates that there are more buyers than sellers in the market. In such a market, listings tend to sell quickly. If prices have been slipping, an inventory shortfall can cause the market to firm up and prices to stabilize.

Another way to find out what's going on in an area is to subscribe to a local newspaper. How fat is the real estate ad section? Are the same home-sale ads running week after week? Or, are listings selling quickly? Are price reductions common or rare?

Other news of interest concerns the local economy. Are new businesses moving into or out of the area? Are employers hiring? Or are they laying people off? A hot job market usually translates into strong home-sale activity due to increased demand.

THE CLOSING: Supply and demand ultimately governs whether the housing market is strong or soft.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.