The Latest Indicators are Out; So Where is the Residential Real Estate Market?

As all successful investors know, they must stay abreast of where the market has been, where it is currently and where it is forecast to be. Once a month, after all the major indexes and indicators have been released, I'll compile them and present them to you with my take on the market. With that said, we'll focus our attention on the following three indexes and indicators: The Case – Shiller Home Price Index, Pending U.S. Home Sales Index, and the Housing Starts and New Permits.

On September 29, 2009, The Standard and Poor's released its Case-Shiller Home Price Index, the leading measure of U.S. home prices. It showed that, although still negative, the annual rate of decline improved compared to last month. This marks the sixth month of improved readings in these statistics starting earlier this year.

The chart above shows the annual returns of the 10 city and 20 city composite home price indexes. All 20 metro areas have shown an improvement compared to June's readings.

"The rate of the annual decline in home price values continues to decelerate and we now seem to be witnessing some sustained monthly increases across many of the markets," says David M. Blitzer, chairman of the index committee at Standard and Poor's.

Pending home sales have increased for seven straight months, the longest in the series since the index began in 2001, according to the National Association of Realtors.

The Pending Home Sales index, a forward looking indicator based on contracts signed in the prior month (August), rose 6.4% to 103.8 from that of 97.6% in July, and is 12.4% above the prior year.

According to the National Association of Realtors chief economist, Lawrence Yun, "No doubt many first time homebuyers are rushing to beat the deadline for the $8000 tax credit..." Yun said the forecast for home sales and prices depends very much on whether a tax credit is extended. "Extending and expanding the tax credit is the best tool in our arsenal to encourage financially qualified buyers to stimulate the economy and help reduce the budget deficit."

As stated in my article last week, the extension of the $8000 tax credit is important to the momentum of recovery in the housing market. There are indications that the tax credit at its current level, if not even higher, will be extended through 2010.

Housing Starts

Housing starts is a measure of the number of privately owned new housing units that began construction in the reporting month. It is usually reported at the seasonally adjusted rate.

Before a housing unit is built, a building permit is issued. Building permits are the leading indicator of how many starts there will be in a month or two. This month reported an increase in permits, up 2.7%.

As we see an increase in permits and housing starts, it indicates a need and demand for new housing.

Other exciting statistics are related to home prices. Home prices rose for the third consecutive month in July, bolstering the view that the long free fall in the housing market may be history.

Economic adviser, Joel Naroff, said Monday, "I think we've made the turn." I agree. I wouldn't, however, expect a fast recovery, and that's okay with me. I'm very comfortable with a slow and steady climb. I know how to buy real estate with immediate equity, so as long as values are increasing, I am in great shape.

As we start to look towards 2010, the indicators of the last 6 to 9 months make me feel confident that now is the time to invest in real estate. Whether you take the opportunity to buy your first home, retirement home, second home, move up home, or doing what I think is prudent and start acquiring real estate for your portfolio, your timing is very good. All you need to do is be prepared and take action.