As the homes market slowly turns back toward balance, it makes sense to look at a long-term trend to better appreciate where we are now.  This graph of the Inventory Index over the past eight years supports the idea that the worst of this three-year decline in the homes market is behind us. 

Improving market conditions such an economy coming out of the worst recession since the Great Depression, the improved affordability (lower prices) of homes, currently low interest rates and significant pent-up demand all support the idea that this Spring 2010 market will be our first normal Spring market since 2006.

The graph above also shows how far we still have to go to get back to a strong sellers’ market such as we experienced prior to 2006.

The graph above compares year on year with 2005 being the last “normal” year; a relatively balanced market, neither a strong sellers’ market nor strong buyers’ market.  Again, the worst appears behind us, last Autumn (on the heels of the financial crisis) and the Spring of 2009.  Yet the inventory index (the number of months to sell every home on the market at last month’s sales pace) needs to drop below five months before home prices begin to move up again.  At this point, even with 12 months supply, we’re roughly even with November 2006, and ahead of November 2007, and 2008.

As the inventory continues to drop, previously frustrated sellers (expired, withdrawn, or not listed) will re-enter the market. Since the index is affected by the number of homes newly listed as well as the number placed under contract, increased buyer activity will be partially offset by new listings. This see-saw of buyer-seller activity will slow the return to a sellers’ market, frustrating anyone hoping for a quick return to 2005 prices.  But let’s not end on a sour note, since the worst is behind us.  Even at this early hour, you can see blue skies ahead.

For a survey of recent home sales in your town, an analysis of your home’s current market value, and a dynamic marketing plan from the industry’s leader, RE/MAX, please call me, Don Sherblom at 908 797-9900 or by email.