Home Buyers are Coming Out !

A real estate trade group reported Tuesday that Pending Home Sales ticked higher in December 2008. A "pending home sale" is a home under contract to sell, but not yet closed.

The group positions Pending Home Sales report as a predictor of future activity, suggesting that home sales will spike 60 days hence.

This is good news for the economy.

However, despite the Pending Home Sales report's correlation to the actual number of homes sold in the future, that connection may not be the report's best use. This is because of what Pending Homes Sales doesn't measure.

Specifically not included in Pending Homes Sales are:

1. Sales of new construction homes
2. Sales of For Sale By Owner properties
3. 80 percent of non-surveyed MLS transactions

And, lastly, it should be noted that Pending Home Sales tracks contracts -- not closings -- and until a home is sold and closed, nothing has really happened in the economy. That's especially relevant in a market like this in which finding financing isn't always so easy.

Pending Home Sales still has its place, though, because it's a terrific look at the current buy-side demand for homes. Clearly, low mortgage rates and falling home prices are making an impact and this is why the December's Pending Home Sales report is so important. It's the third housing report this month that shows the demand for homes rising while the supply of homes falls.

The other two reports:

1. The number of "used" homes sold monthly is rising
2. The number of new homes being built are falling

This is good news for home sellers and for the economy. As the existing inventory shrinks the value of the remaining inventory stabilizes and then increases. nd in an area like Philadelphia, where the prices have not been dramatically reduced, the benefot is even greater. If housing is expected to lead the U.S. out of recession, the seeds for that recovery may have already been planted.

(Image courtesy: The Wall Street Journal)

Low Rates + Too Many Houses= Opportunity

For the first time in over a year, the sales of "used homes" fell below the 5-million unit trendline, helping to push the total home inventory higher by 0.1 percent nationwide.

Based on the rate at which homes are selling nationwide, it would take 11.2 months for the existing housing supply to be exhausted. In our market, the existing housing supply would be exhausted well before that benchmark.

For home buyers, this is an opportune time for negative news on housing.

First, sellers know that between now and the Super Bowl, housing activity will be light. The general scarcity of buyers may force a seller to accept a bid he wouldn't have accepted otherwise.

Second, the economy is showing weakness and that, too, can concern a home seller. Buyers are less likely to extend themselves during times of economic uncertainty, further reducing the buyer pool and, again, putting pressure on the seller to "make a deal".

And lastly, because the government has been trying to force mortgage rates down as a way to stimulate the economy, the weak housing data is actually making it cheaper to finance a home. This means that a well-qualified home buyer can better stay within budget.

Each 0.500 percent rate reduction saves $33 per $100,000 borrowed.

It is important to remember, though, that the U.S. housing market is not national -- it's highly localized. This is one reason why national real estate reports can be misleading. Just as figures from Phoenix have little to do with statistics from St. Paul, even data from neighboring ZIP codes can vary. In our marketplace, prices have not been adversely effected, even though the number of homes sold in 2008 was less than in 2007.

The universal truth, however, is that a home that is priced fairly will sell more quickly than a home that is not. And, until the Super Bowl passes in 45 days, expect fewer buyers to be out there competing for them.

(Image courtesy: The Wall Street Journal Online)

If Demand is Up and Supply is Down - Are We Starting to Recover?

Statistics are what you make of them, but sometimes, they can provide good perspective.

For example, from its peak in 2005 to its trough in late-2007, the number of "used" homes sold nationwide plunged.

• In 2005: Roughly 7 million homes sold annually
• In 2007: Roughly 5 million homes sold annually

Through all of 2008, though, Existing Home Sales volume has been essentially flat. Some months up, some months down, but always hovering near the 5 million unit mark.

The data from September is no different.

For the 13th consecutive month, the number of home resales nationwide straddled the 5 million benchmark, clocking in at 5.18 million units. This tells us that everyday Americans are still buying and selling real estate at a fairly steady clip -- despite what the news keeps telling us.

Versus August, September sales volume grew by 5.5 percent.

Now, couple this two other data points and we can see that the housing market is showing multiple signs of strength:

1. The national home supply is now down to 9.9 months
2. The number of homes under contract is up 7.4 percent

Again, though, statistics are what you make of them. Just as there are positive signals about real estate, there are negative ones, too. The credit markets are one example of that.

But, either way, with a full year of stable sales volume behind us and stories of recovery in beat-up markets like California, we can't ignore the idea that housing may be done trolling its bottom.

It takes willing buyers and willing sellers to turnaround a market. It appears that housing may have both.

(Image courtesy: The Wall Street Journal Online)