The Leading Indicator of a Housing Recovery

If you look at housing prices it's easy to think the market is still in decline, but prices tend to be a lagging indicator. Think of the typical months it takes from the time a property is listed until it is closed, even if it sells relatively quickly... it's the way the real estate process works. Prices could takes months to reflect improvement.

The leading indicator is sales, and the National Association of Realtors reported that January and February reflected the strongest two-month start in the past five years. Sales in our Twin Cities market reflects that as well.

Economists have been saying that the housing market is healing, but many people haven't noticed or don't believe it because prices haven't caught up yet.

A recent Bank of America Merrill Lynch forecast predicts that prices are bottoming now, and analysts are predicting that prices will remain flat for the next two years as excess foreclosure inventory is absorbed.

Remember, foreclosures and short sales sell at lower prices than traditional sales so create a drag on prices.

In our Twin Cities market distressed sales (foreclosures and short sales) made up nearly 50% of closed sales from mid February to mid March. Hopefully that will change as more traditional sellers get back into the market after their typical winter hiatus. It's also time to take advantage of the seller's market created by the shortage of homes available for sale.

Increased demand and a higher percentage of traditional sales should cause median sale price to rise again.

Long term, analysts predict home prices to pick up in 2014 after holding steady for a couple years, with a cumulative growth of 42% from 2012 to 2020.

Sharlene Hensrud, RE/MAX Results - Email - Minneapolis - St. Paul Real Estate Market