Housing Recovery or One-month Anomaly?

CNNMoney.com’s Ben Rooney reported this morning that sales of new homes (new construction) had a quite unexpected rise in February.  After a record low in January, new home sales rose 5%.  It’s the first increase since July. 

In addition, the National Association of Realtors (NAR) noted a 5.1% increase in existing home sales in February.  New home starts, initial construction, was up a whopping 22%.  Add to all that that applications for home loans, obviously many for refinances, was also up 30%. 

Of course, while the sales rate was up across the board, medians sales prices continue to fall.  Honestly, until the stagnant inventory is absorbed, I think we can reasonably expect sales prices to trickle down.  They will eventually hit an equilibrium where the price meets demand and sales rise.

All of this is quite obviously good news.  The question, of course, is does this signal an earlier than expected rebound of the market or is it simply a one-month anomaly?  Perhaps the answer can be found on Wall Street.  Home building companies and companies with strong ties to the housing market, like Home Depot and Lowe’s, have seen large increases in their trading values.   In fact, the Homebuilders Exchange-Traded Fund (ETF) is up nearly 40% over the past two and half weeks. 

Probably the best advice is to keep a cautionly optimistic attitude.  Before the market can have a true recovery, there needs to be a period of stabilization.  Maybe that’s what all these numbers are signaling, that the market is beginning to stabilize before its eventual recovery.

Keeping my fingers crossed.

To read the entire article, please go to: http://money.cnn.com/2009/03/23/real_estate/existing_home_sales/index.htm?postversion=2009032311