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Is the Housing Market Actually Recovering?

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.

Home Sales

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.

Home Prices

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.

Bottom Line

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.

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6 replies
  1. Crandall
    Crandall says:

    I work in the Arizona market and have noticed every home that comes on the market has an average of 6 offers on it. The past 2 months I’ve also noticed a lot more new home sales so I started to visit a few of the new home subdivisions only to find out at the well priced new home subdivisions the sales quadrupled ouer the last 2 months. In one subdivision sales went fron 5, 5, 20, 21 per month respectively. I had several customers after not getting the bid on several resale homes, finally bought a new home. Where is this shadow inventory? When is it coming?
    P.S. my customers just love the idea of the new home warranty and the energy efficient new homes.

  2. Mike Mccubbin
    Mike Mccubbin says:

    Interesting take of a “recovery”. Since this site is largely targeted to real estate professionals I guess transactions will lead to a recovery for their income. However, for homeowners, prices going down hardly qualifies as a recovery.

  3. Ruthmarie Hicks
    Ruthmarie Hicks says:

    But this is the way it always works…Right now homes are “on sale” and buyers – if they are smart – will pile on board.  Only when demand overcomes supply will prices rise.  That will happen eventually – but it will take some time. 

    • Mike Mccubbin
      Mike Mccubbin says:

      Well in that case we are always in either a recovery or a booming market. Never a downturn. Interesting marketing that is consistent with the best interests of the transactional folks in the real estate and mortgage markets but not necessarily the buyer.


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