Photo Credit: Vanguardians.org
In housing, things are still rough, but industry conditions are starting to look positive in more and more areas. Mainstream media has found something “nice” to say about real estate for a few months in a row, home builder stock prices are rising, bloggers are reporting good news in their markets and home builders themselves are starting to regain confidence. Overall, we’re far from a national rebound, but real estate is local and in areas across the U.S., recovery may already be a reality. Growth and stabilization in these cities should help surrounding markets.
Does your market have what it takes to bottom-out, is it in recovery, or are you destined to endure more real estate woes? Use these indicators to see if your market will help lead the way towards a broad recovery.
Supply of Homes
How many homes are on the market in your area? If you’re looking for the bottom, or looking to buy a new home and worried about the risk, the supply of homes is a good indication of a markets health. Nationally, we’re looking at a 7.3 month supply of new homes, which is high, but inventory levels were above 13 months in January and they’ve been trending down all year. Look at your local inventory levels to see where your market is at, if the levels are low, it may mean a recovery is underway, or near.
supply of new homes data | supply of existing homes data
Foreclosures, Short Sales & Delinquencies
Foreclosures are like the black plaque in a real estate market. They kill property values, destroy neighborhoods and keep inventory levels high; short sales aren’t much better. If your area has a lot of foreclosures, short sales and it’s experiencing an increase in delinquencies, you’re far from a bottom. On the flip side, a decrease in any of these things may signal that a real estate market has potential to do better. If banks stop accepting every short sale offer, they could be overwhelmed, but it’s just as likely that they believe the home has value. In some states, banks are willing to take a complete loss on a property and give it away. If banks aren’t in a hurry to get rid of tenants and accept short sale offers, they’re still willing to take risks in a market and they have confidence in the area.
Increase in home prices
If prices go up, real estate in your area could already been recovering. Home prices go up because people are willing to pay more for them; it’s that simple. A few month-over-month increases in home pricing speaks a lot about what’s going on in the surrounding area. If you look into why prices are rising, you’ll probably discover that inventory is drying up, foreclosure rates and delinquencies are decreasing and the area is growing. Be careful and look at all home categories, an area may show a median price increase because more high priced homes are selling; homes in one category don’t necessarily represent the entire market.
S&P/Case-Shiller Home Price Indices
Employment
Unemployment kills confidence, prevents growth and plays a huge role in increasing mortgage delinquencies. If unemployment is increasing in an area, the real estate market in that area can’t bottom-out and it’s probably far from reaching the point of recovery. Long-term unemployment will kill a local economy and eat away at its population. Employment on the other hand stimulates growth and demand for housing. Jobs bring life to a community, if you see reports that the unemployment rate in your area begins to trend down, you could be near a recovery.
New Home, Existing Home and Pending Home Sales
As with a few of these other signals, home sales will most likely show a positive trend after other factors become positive trends. Home sales are tricky though, if you’re looking at sales in an area, look into who’s buying what. If investors are clearing up foreclosures, consumer confidence and traditional home sales could still be months away. If foreclosures and delinquencies are still at high levels, inventory won’t decrease and prices may continue to decline. Regardless, activity is activity and an increase in sales is always good news. If you’re in an area that experienced a lot of new home building during the boom, an upward trend in new home sales could mean more jobs, future growth and indicate a low supply of foreclosures.
new home sales data | existing home and pending sales data
Affordable Housing
During the boom years, affordable housing was nearly non-existent in some of the most popular areas and more and more Americans couldn’t reasonably afford a house. Today, the Housing Affordability Index provided by Realtor.org clearly shows that homes are becoming more affordable, even in popular destinations.
Consumer & Investor Confidence
Confidence is among the most important factors in helping to establish and maintain a market recovery. Without confidence from consumers and investors, homes won’t sell and inventory levels will remain high. More importantly though, if consumers and investors are regaining confidence in a market, it’s probably because many of the other signals are already pointing in the right direction.
Foreign Investment
Foreign investment in real estate, whether its commercial or residential, can do a lot for an area and shows that at least some investor confidence has returned. Foreign investment in commercial properties may not say much about the immediate future, but it may indicate that the investor sees long-term growth and stability. It’s unlikely that any foreign investors would invest in areas that don’t promise growth; and I can guarantee that a lot of thought goes into each investment. If foreign investors start swooping up millions of dollars of real estate in your area, it could mean nothing like it did in ’07, but if it’s in line with other positive trends, it could mean growth and recovery are around the corner.
Days on Market
Using days on market to predict or confirm a recovery can prove difficult. The variable doesn’t say much about foreclosures, and the data can be altered if a home’s listing agent removes the home and then re lists it, which is equivalent to pressing the reset button on that home’s data. If you’re looking at a market and homes are just sitting, not selling for months or years, inventory is probably mounting up and prices should decline. At the same time, a real estate market with low average days on market shows that homes are selling and that inventory isn’t piling up; it would also indicate that foreclosure activity is low. Ask a real estate agent about the average days on market in your area.
See Also:
Key Housing Indicators – Standard & Poor’s
I am a Managing Partner, Internet Marketer and Blogger at New Homes Section. Follow me on 
I’m not a big fan of the Case-Shiller price index is a measure of real estate market activity. Case-Shiller does a decent job at measuring home prices, but the numbers are always at least two months behind. Successful investors work on more recent data.
.-= San Diego Homes´s last blog ..La Jolla Homes Most Pricey In U.S. =-.
@San Diego Homes – thanks for the info. about the Case-Shiller numbers, any recommendations on a better source?
I think we are on the road to recovery. The job market here is still bad, but foreclosures are slowing down and properties are selling. I think we’ll see real improvement in 2nd quarter of next year.
.-= Chas@Las Vegas Real Estate´s last blog ..Time Running Out for the First Time Home Buyer Tax Credit =-.
@Charles – that’s good news to hear. Las Vegas was hit pretty bad, hopefully, employment picks up soon.
@Jayson, considering Dubai and Singapore, the two worst hits market in the entire world, recovery in Las Vegas is something appreciative. At present potential customers lure themselves to buy homes at 50% price and sell it at a whopping price in 2-3 years. All we have to do is plan and play for a better part of 2009 and the forthcoming year of 2010. Pretty anxious
Regards,
Mack McMillan
.-= Mack@Las Vegas Homes´s last blog ..Commercial Real Estate Bubble =-.