Monday, June 7, 2010

Economic Update-inventories are shrinking

There is a great deal of media coverage on the results driven by the tax credit for first time home buyers. The Chicago Tribune reports that purchase contracts rose 6% in April as compared to March and both March and February were up compared to their respective previous months. If you compare year over year you see significant growth in both contracts and sales (closed purchases) for Chicago in April. Nationally, we are seeing a similar tax credit effect.

The number I watch as a signal to a recovery is inventory. Nationally we remain solidly in a “buyer’s market” with 10 months of inventory (6 months is a balanced market). This number, though, is way down from almost 16 months in February. In Chicago the picture is healthier. We have gone from 10 months inventory in February to 7.1 months in March and – this just in – 5 ½ months in April. April shows us solidly in a balanced market – not a sellers market but balanced.

This does not mean that sellers should rush out and raise prices – but certainly confirm with your agent that your home is priced right for the market conditions in your specific neighborhood and home type. This does not mean buyers will be lining up to see homes and in a weak negotiating position but there will be a balance. We have seen the bottom and should expect a gradual improvement in the housing market as the economy and the outlook on jobs improves.

What next?

May and June numbers should show us what happens now that the incentive is past. We will see a high number of closings as we reach the June 30th incentive closing deadline. Will purchase contracts slow down? Will all the folks who sold to first time buyers be on the hunt for a step up home? My prediction is that we will see an increase in the average price of a home. The units may slow as some of the folks selling to first time buyers will relocate out of the market but the value of the purchased properties will increase due to trading up. Check back in to see if my predictions are accurate

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