As of January, the real estate market continues to be on the mend with increased sales and lower inventory. "While it is too early to determine if the real estate market has been “corrected”, it appears to be trending back to its “normal” long-term appreciation rate.   According to National Association of Realtors (NAR), on a national level, 4th quarter of 2006  appears to be the bottom of the current housing cycle and it expects to see improvement in both sales and prices going forward."
 
"A recent detailed study of 379 US metropolitan markets by a well-regarded Pennsylvania consulting firm, Moody's Economy.com, says that while home prices are falling nationally, the worst may be over for Boston area homeowners. Prices may not rise any time soon, the study said, but they are probably NOT going to fall much further."   Boston "is very CLOSE TO THE BOTTOM," said Mark Zandi, chief economist for Moody's Economy.com. "If the price declines aren't over, they're pretty close to over." "PREDICTING IS TRICKY. The highs and lows of any market, be it stocks or homes, become clear only after the fact.

PRESENT ECONOMIC OUTLOOK:  As long as households keep on spending, the economy should be able to withstand the housing correction. The real test of the economy’s strength going forward rests with the consumer. Despite the downward revision in the fourth quarter’s growth rate, increase in consumer spending is still a robust 4.2%. Households enjoyed a solid 1.0% increase in personal incomes in January, the strongest in a year and more than double the 0.4% average increase over the previous six months.  " While the stock-market’s turbulence may well continue in the weeks to come – and could eventually have a real impact on the economy – it does not appear to be justified by a widespread and pronounced weakening in economic fundamentals," according to Sovereign Bank.
 
PRESENT REAL ESTATE OUTLOOK:  To gauge the the market 's performance, I have  focused on the following metrics below a) monthly sales & inventory  levels and b) repeat sales or refinancing of the same property over time.  
 
A) Monthly Sales Report:  Globe or Boston Business Journal or Banker and Tradesman or other publications mostly focus on EXISTING HOME SALES to gauge the state of the market. And to the extent that we consistently use that as a baseline metric during good and bad times, it should be able to act as a good indicator of the state of the market. But if you want to get "technical" about market indicators then existing home market is not as good of a barometer of housing conditions as is the new-home market, "primarily because an existing home transaction is recorded at the time of closing, reflecting a sale made months earlier. Conversely NEW HOME SALES are recorded when a contract is signed, which is more indicative of current conditions."
 
So what does this mean? Every local and regional publication ballyhooed the increase in home sales in January, 2007, yet again, suggesting that the market may have bottomed out. But is that not the case? 
 
While EXISTING HOME sales increased in january,  NEW HOME sales decreased. In light of the above differentiation between existing home sales and new home sales, the slump in new home sales in Jan. should probably be given more weight than the rebound in existing home sales last month. "However, speculation that the housing slump is bringing on a free-fall in home prices and vaporizing the value of a household’s major asset is simply not true."
 
The number of condos for sale is down 17.8% from 17,495 units in January 2006 to 14,374 units in January 2007. This represents 11.3 months of supply, down from 14.5 months in January 2006. With respect to single family homes, January 2007 inventory (28,420 homes) was 16% lower than January 2006 levels (33,627) statewide. This translates to 10.4 months of supply in January 2007, compared to 13.8 months in January 2006. The market is considered to be balanced when it has 8 months of supply.  The median price of a single-family home fell to $340,000, 2.4 percent lower than a year ago but VIRTUALLY UNCHANGED for the past four months." 
 
Larissa Duzhansky, a housing economist for the Lexington consulting firm Global Insight, said falling prices "may be a sign of stabilization" because homes are becoming more affordable. "We're less overvalued if prices fall, and sales are beginning to go up." 
 
 B)   Repeat Sales or Refinancing of The Same Property Over Time:  Office of Federal Housing Oversight tracks the prices of repeat sales or refinancing of the same property over time. This series is a more reliable indicator of home price trends than that shown in the monthly home sales report (new and existing), which is skewed by changes in the mix of homes being sold. Acording to OFHEO, while the appreciation in home prices is clearly decelerating, it has not stopped  or fallen as is reported in the monthly sales figures. Indeed, the OFHEO figures show that US home prices in the fourth quarter rose by an annual rate of 4.5% while Massachusetts home prices increased by 0.5%  (keep in mind that this indicator is not what most of you follow to gauge the real estate market. I included this to for two reasons: firstly, to make you aware of this metric and secondly, to highlight the fact that even this indicator, widely considered a more relevant gauge of the market, is now positive for MA.).

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