Has the Real Estate Market Finally Found a Bottom?

May 27, 2009 -- The "great recession" began with the collapse of the housing market, and economists from Florida to California say it's unlikely to end until home sales and prices stabilize.

But now, after nearly two years of steep declines, there are small signs that the housing market may be close to finding a bottom.

Nationally, existing home sales rose 2.9 percent in April from a month earlier, according to the National Association of Realtors.

Though sales were down 3.5 percent overall from a year ago, home sales rose modestly in the South and shot up 11.6 percent in the Northeast, the realtor group reported.

"I think the national numbers are showing that we may be seeing a bottom," said Thomas Lawler, a real estate economist with Lawler Economic and Housing Consulting. "But again, it's not universal, it's not everywhere across the country."

In New Rochelle, N.Y., a suburb of New York City, realtor Phil Faranda said volume has noticeably increased as buyers hunt for bargains.

"People are coming out because they feel they can get a good deal for the first time in quite a long time," he said.

Experts say the stars are aligned for people to begin creeping back into the housing market.

The median price of a home in the United States dropped 15.4 percent in the past 12 months to $170,200, 30-year mortgage rates are below 5 percent and the government recently introduced an $8,000 federal tax credit for first-time homebuyers.

Bargain-hunting first-time homebuyers drove almost half of last month's sales, newly released statistics show. Buyers are "looking for something that they can get at rock-bottom prices," Faranda said.

And new homebuyers have plenty to choose from, according to data released today by the NAR.

The number of unsold homes on the market at the end of April rose almost 9 percent from a month earlier to nearly 4 million -- a 10-month supply at the current sales pace, experts say.

The homes that are selling fastest are small starter homes, especially those in foreclosure: Such homes have even sparked bidding wars in places like Las Vegas, Phoenix and Miami.

Housing Market, Unemployment Linked

The NAR estimates homes in foreclosure accounted for a startling 45 percent of sales in April, while the market for high-end properties is at a virtual standstill, thanks, in part, to the difficulty in securing mortgages for expensive homes.

With unemployment likely to rise further, the tide of foreclosures is likely to keep rising, which means prices are likely to continue falling.

"The number one good news is that after about six or seven years where home prices weren't affordable for most people unless they took out a risky mortgage, now they are," Lawler said.

Adam Castenir said he and his wife just bought their first home, in Granby, Conn. Like many recent first-time homebuyers, Castenir said lower interest rates and tax credits helped him seal the deal.

"It was a good opportunity for us to really begin to become homeowners," the 25-year-old youth pastor said.

Economists still warn that the biggest headwind for the housing market is rising unemployment. The more homeowners who lose their jobs, the more who will likely lose their homes, they say. And as long as foreclosures keep rising, prices are likely to keep falling, so what happens with the job market with be key.

"I think we've got to be focused on the economy and jobs," Lawler said. "We do that, and home prices will bottom before the end of the year."