Everyone wants to know if the housing market is truly showing signs of a recovery. There are conflicting headlines every day. One day, we hear sales are up. The next day it is reported that prices are down. Is the real estate market coming back? The answer is ‘yes’ and ‘no’.
There are two aspects that must be evaluated: house sales and house prices. They will not recover at the same time. Sales are already increasing rather nicely while prices will still soften in many markets through 2012.
The National Association of Realtors (NAR) issues a Pending Home Sales Report each month. We can see by the graph below that sales have been increasing nicely over the last twelve months. Real estate professionals across the country are reporting that activity has increased compared to last year. The sales side of the recovery is starting to show great promise.
Many price indices have shown that national home prices are continuing to stumble. Even with demand increasing, we must look at where the supply of housing stock stands. Though ‘visible’ inventory (homes currently on the market) is shrinking, there is still a large overhang of ‘shadow’ inventory (foreclosures about to come to market as a result of the National Mortgage Settlement). This increase in inventory will outpace the increase in demand and thereby cause prices to continue to soften in many parts of the country.
Housing is coming back. However, sales will come back before prices. We will not see prices appreciate until we work through the oversupply of homes on the market.