As the Early Signs of Recovery Emerge, Don’t Pop-the-Cork Just Yet!

There is evidence that the soft real estate market is stabilizing, but let’s not get too carried away! Signs of weakness in the real estate sector are slowing and while that is surely a welcome sight, it is important not to confuse these signs with an actual recovery.

Examples of positive trends in terms of the number of sides can be cited at both local and national levels. For example, The Kansas City Regional Association of Realtors said that April sales of new and existing homes were up 10% from March, with almost 2,500 homes sold. Nationally, pending home sales in April were up 6.7% from March, the biggest monthly increase since October 2001, according to a seasonally adjusted index of sales contracts kept by the National Association of Realtors. The organization credits the federal tax credit for first-time home buyers as a major factor in the recent improvement. To keep things in perspective however, these statistics represent improvements in the aftermath of historic multi-year declines.

At the same time, the national median sales price in April fell more than 15% from year-ago levels to $170,200, driven by sales of inexpensive foreclosures and other distressed low-end properties. That was the second-largest yearly price drop on record, according to the national Realtors’ group. Now, with mortgage rates again on the rise, it would be premature to draw a trend line and say we’re back on the way up.

Although economists are encouraged by indications that the demand for housing is returning, the outlook is far from the boom days of just a few years back. The health of the U.S. housing market, mired in a three-year slump, is one of the key issues facing the economy. Given that the real estate industry makes up nearly 21% of the Gross National Product, its importance to overall economic recovery cannot be overstated. Though sales (units) may be recovering, analysts caution that prices will take longer to stabilize because of the glut of unsold properties. In fact, prices are unlikely to rise again until foreclosures start declining, reducing overall housing inventory nearer to normal levels and that’s unlikely to happen before the end of 2010.

Without doubt, real estate companies must remain committed to scaling back unnecessary expense, reducing unneeded office space, maximizing agent productivity, uncovering new markets and finding innovative ways to increase revenues. Doing so will cause our industry to be even better prepared for the market recovery, when it arrives.

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