You hear news every week about the housing market, and while some of it sounds promising, other reports aren’t as positive. So, how do you know if the housing market is recovering? There are several indicators that experts use and you can, too.
Don’t Look at Prices
Housing prices are not the first indicator of a recovery; rather, they are often one of the late signs. The first sign is increased house sales. People won’t buy if they are worried about income or a job. If they are looking to buy a house, it shows they have confidence in their job security, their income, and the economy as a whole.
Prices will increase as the demand for houses increases; this is the law of supply and demand. The drop in house prices may be depressing, but it isn’t a true indicator of the state of the real estate market.
According to a Bloomberg survey, housing sales increased in 2011 (compared to 2010), and February of 2012 promises to have the highest number of sales in 1 month in the last 2 years.
Another indicator of the state of the housing market is how much inventory is available, or the months’ supply. It is an estimate of how long it would take to sell all of the homes that are available today, at the current rate of home sales. Right now, the inventory is at 6.6 months, meaning it would take about six and half months to get rid of all of the homes on sale in the market right now. This number is actually considered healthy because it shows a good balance between buyers and sellers.
You can look at statistics that have nothing to do with the housing market directly, but will, to some degree, have an impact on it. For instance, as unemployment rates drop, it indicates a steadily improving economy. As more people get jobs, they will begin to look at their housing situation. Once they feel secure in their career, they will be ready to commit to a mortgage and start looking for a house.
As the foreclosure rates drop, fewer homes are coming back on the market. The homes that are for sale are from owners who have been making their payments and are ready to sell. Potential buyers also feel more secure about entering the housing market if they hear improvements. A high rate of foreclosure makes people hesitant to look for a mortgage. It takes some time for buyers to regain their confidence in mortgage companies and banks.
If you wait for housing prices to increase before you feel safe about purchasing a home, you may be waiting a few years. But if you are willing to look at other indicators, you might decide that now is the perfect time to start investigating the possibilities. You can get in on the beginning of the recovery while home prices are at their most affordable.