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Author's Note: This post was written for Bring the Blog, a mortgage and real estate professionals' service that writes supplemental blog content. I am the owner of the company.  The local keywords "Cincinnati", "Blue Ash", and "Hyde Park" were added automatically via Bring the Blog's localization system.

More positive signals from housing -- home values are still on the rise.

According to the Federal Housing Finance Agency, after posting its first quarterly increase since 2007 this past September, the Home Price Index rose by another 0.6 percent in October.

Prices are up in 4 of the last six months.

But before we take the stats to the proverbial bank, it's important that we recognize the Home Price Index for its shortcomings.

1. HPI only accounts for homes with mortgages backed by Fannie Mae or Freddie Mac
2. HPI only accounts for re-sold homes -- newly-built homes are excluded
3. HPI aggregates national data whereas real estate markets are local phenomena

On a broad scale, the Home Price Index can be useful, but it doesn't specifically apply to Cincinnati or any specific U.S. market.  For that, analysts tend to turn to the Case-Shiller Index, a privately-produced report that assesses home values in 20 cities nationwide.

The good news for home sellers in Blue Ash and Hyde Park is that Case-Shiller's most recent report corroborates the government's conclusion -- home values are creeping back.

Home buyers should pay attention. When public and private sector data is in accord, markets tend to go along and, looking back, housing likely bottomed in February 2009.

Since then, home sales are up, home supplies are down, and values have increased in most U.S. markets. Furthermore, so long as mortgage rates remain low and government stimulus is in place, the trend should continue through at least the first quarter of 2010.

If you're on the fence about buying a home right now, or wondering about timing, consider your options vis-a-vis today's market.  Into the new year, homes won't likely be as cheap to buy, nor to finance.

Author's Note: This post was written for Bring the Blog, a mortgage and real estate professionals' service that writes supplemental blog content. I am the owner of the company.  The local keywords "Cincinnati" and "Ohio" were added automatically via Bring the Blog's localization system.

One day after November’s Existing Home Sales report blew away estimates, the Census Bureau’s related New Homes Sales report failed to impress.

A “new home” is a home that is newly-constructed; not bought as a resale.

In a lackluster showing, New Home Sales dropped 11 percent in November, falling to the lowest levels since April. Furthermore, the all-important “months of supply” climbed by a half-month to 7.9.

The press pounced on the figures and if you only read the headlines, you’d think that housing had cratered.

Some of the angles were quite bold, even:

• Weak U.S. Home Sales Show Recovery’s Shakiness (Reuters)
• New Home Sales Plunge In November (CNNMoney.com)
• Housing Forecast : Off Life Support, Still In Critical Care (CBS News)

And these headlines, although technically accurate, only tell half the story. The other half relates to November 30’s role as the original First-Time Home Buyer Tax Credit ending date.

See, different from home resales, when a contract is written on a newly-built home, the home is rarely finished.  This is the same in Ohio as in any state in the union.  According to the Census Bureau, just 1 in 4 such new homes are sold “move-in ready”.  The other 3 of 4 are in various stages of construction when a buyer signs on the dotted line.

Some have yet to break ground, even.

Regardless, it’s at this date of signing that the Census Bureau counts the home as “sold” — not at the actual closing.  This is the main reason behind the November New Home Sales data dip.

First-time home buyers in Cincinnati would have risked up to $8,000 in federal tax credits if they had (1) signed for a newly-built home and (2) it wasn’t ready for move-in by November 30, 2009.

It wasn’t until November 5 that the credit was officially extended, remember.

So, suddenly, the fact that first-timer home buyers represented more than half of last month’s Existing Home Sales isn’t so shocking. "Buying new" in Novembers carried a lot of risk.

There’s always more to the story than the headline.  Sometimes, you have to dig deeper.

Looking back over 10 months, the housing market is on a steady course of improvement. November’s New Home Sales data — although weak — is not terrible. Despite what the papers might say.

To get content like this for your mortgage or real estate blog, check Bring the Blog.

The housing market is in recovery. There's lot of stats to back it up so take your pick:

• Existing home sales are up and supplies are down
• New home sales are up and supplies are way down
• Pending home sales are posting at record paces

And, perhaps, most importantly, the best gauge of the housing market's health -- home values -- is showing consistent improvement.  Both private-sector Case-Shiller Index and the government's own Home Price Index showed home prices on the mend.

Foreclosures may not yet have peaked, but the worst of the housing market is definitely behind us. Anyone who tells you otherwise is selling something.

Between the 2nd and 3rd quarter this year, according to the Federal Home Finance Agency, home values rose 0.2 percent nationally.

Now, it's a statistic without direct meaning to homeowners because the "national real estate market" doesn't exist.  You don't buy a home in America -- you buy a home in Cincinnati.  The Home Price Index data remains important for trending reasons, however.  Especially to lenders.

See, unlike you and me -- people with a limited geographical exposure to the housing markets -- lenders are nationwide.  To them, national data is extremely relevant.

A "national" real estate portfolio is a lender's path to diversification.

So, as we dissect Q3's data, it's important to pick up on a few of the subtler points as compared to Q2.

First, geography does not appear correlated to home price improvement. Each region is represented equally in the Top 10 and spread equally throughout the list.  Clearly, this isn't just a Coastal Recovery.

And second -- stunning analysts -- is that home value changes are occurring independent from foreclosure activity.  For example:

1. California ranks #2 in home value improvement between Q2 and Q3 2009.  Over that same period, California's Foreclosures per Capita is second-worst in the nation, behind Nevada.
2. Illinois beat the national average for home value improvement between Q2 and Q3 2009.  Over that same period, though, Illinois foreclosure rate was nearly 3 times the national average.
3. Between Q2 and Q3 2009, Delaware's foreclosure activity was third-lowest in the country. Its home values, however, fell by more than any other state.

The supply-driven relationship between foreclosure rate and home prices is broken. This is because buy-side demand for homes now exceeds new supply is most U.S. markets.  The inevitable result is higher prices everywhere.

Low mortgage rates, an expanded tax credit, and general optimism about housing should sustain demand through the winter.  Therefore, expect home values to continue to climb further.  If you plan to buy a home in 2010, consider moving up your time frame.

The best "deals" may the ones you get between now and the Super Bowl.

To get a feel for what mortgage rates and payments look like in your local market, with the details of your purchase. I may have some follow-ups for you, but it's a good place to start.  I respond to all of my own emails and I'm pretty quick about it, too. I can send a Good Faith Estimate upon request.

The last two years have been rough on housing in a chain reaction-kind of way.

First, mortgage guidelines tightened, preventing some homeowners from ditching onerous ARM products.  That sparked a foreclosure boom that led to large losses on Wall Street.  In turn, it sank the U.S. economy.

Today, as compared to 3 years ago, foreclosures are way up, home values are way down, and mortgage rates are as low as they've ever been. It's wonderful news for home buyers -- there's a plentiful supply of homes and financing is cheap. Home affordability is near all-time highs.

But the market is changing.

Massive, sustained government stimulus has helped reverse the economy's slide.  There's still some rough patches, but overall, prospects look bright for 2010.

In housing, we can already see the improvement:

• The supply of new homes is down 40 percent this year
• The number of existing home sales are soaring in Cincinnati and other markets
• Pending home sales are as high as they've been since 2006

Furthermore, home prices are on the rise in the majority of U.S. markets.

The Buyers Market is over, folks. If you bought a home in February 2009, pat yourself on the back -- you timed the market bottom perfectly.  Both home prices and mortgage rates were troughing that month.  Since then, however, it's been a steady erosion and home seller are psyched about it.

For today's home buyers, mortgage rates remain low and home prices have a lot farther to climb.  Homebuying conditions may not be as perfect as they were 9 months, but, as compared to what we'll see next year, they're pretty excellent.  Especially because mortgage rates will cross 6 percent soon.

You can't lock a mortgage rate before you've found a home, but you can get prequalified and fast-tracked for one. Call or for a rate quote and help with your homebuying.  I answer all of my own emails and my rates are very, very good.

For the 7th consecutive month, the Case-Shiller Index showed a reduction in annual home price declines.  That's more than two seasons, folks. Surely, by now, we can say housing is in recovery.

And, even more impressive than the annual Case-Shiller figures are the monthly ones. 

According to the data, 17 of the 20 Case-Shiller markets improved between July and August 2009.  It's one fewer than last month's 18-of-20, but impressive nonetheless.

Market-by-market, the funk is ending. Home values are rising.

Lest we get carried away, let's remember that the Case-Shiller methodology is flawed:

1. It measures home values in just 20 U.S. cities.  Those 20 cities account for a paltry 9% of the U.S. population.
2. Its data is on a 60-day delay.  Case-Shiller doesn't reflect the "right now" of housing. It reflects the "just was".
3. It ignores the "all real estate is local" adage.  Case-Shiller lumps large metropolitan areas into one data reading.

Despite its flaws, however, the Case-Shiller Index remains relevant to housing.

See, as the economy progressively worsened throughout 2007 and 2008, Wall Street put the blame on housing, citing the Case-Shiller Index in support of the argument.  Analysts seemed to revel in the 33 percent drop in home values nationwide.

But now, as the Case-Shiller Index shows improvement, it's making a case that the economy is coming back from the brink.

An improving economy will harm home affordability.

Soon, government stimulus will fade, mortgage rates will rise, and sellers will regain the upper-hand in negotiations. Based on the Case-Shiller home value data, the "right time" to buy a home may have been in 7 months ago -- while the status of the recovery was still in doubt.

For a pre-approval letter for your next home, just and I'll get you started. You may have missed the market bottom, but this is definitely not the market top.  You may want to buy before the Case-Shiller runs its streak to a dozen.

If this isn't a housing recovery, than I don't know what is.

For the 6th consecutive month, the S&P/Case-Shiller Index posted strong numbers, a streak that dates back to February 2009.  It comes 3 years after an epic collapse that left many wondering if housing would ever recover.

It's clear now.  The answer is "yes".  Housing will most definitely recover.

That said, we can't rely on the Case-Shiller Index alone to tell us that housing has recovered.  This is because the Case-Shiller methodology is fundamentally flawed.

First, it only accounts for 20 U.S. cities which, in turn, represent just 9% of the U.S. population.  If you live in one of the cities not covered by Case-Shiller (i.e. Cincinnati, Dayton, Columbus), Case-Shiller has no local meaning to you whatsoever.

Omitting 91 percent of the population is a big deal.

But even if you do live in one of the 20 cities, Case-Shiller data is still kind of useless on a micro level.  This is because the measurements clump individual city neighborhoods into one group of data.  In Chicago, Lincoln Park and Rogers Park, and Andersonville and Bronzeville are all in the same sample set.

Real estate doesn't work that way.  Every neighborhood is unique.

That said, the Case-Shiller Index is still important. As the de facto barometer for home values nationwide, sustained strength in the Case-Shiller data means that the recession may be ending (or is already over).

Home buyers take note.

The combination of a soon-to-expire $8,000 First-Time Home Buyer Tax Credit and a rebounding housing market is creating intense competition for homes that may only get worse.  Bidding wars seem common lately and that can have a negative impact on home affordability.

If you're thinking about buying a home right now or wondering if the time is right, according to Case-Shiller, the "right time" may have been 6 months ago -- before the string of increases.  With values on the upswing, homes may only get more expensive.

For a pre-approval letter for your next home, and I'll get you started.

Sometimes, you have to look deeper than the headline to get the full story.

As reported by the National Association of REALTORS®, the number of Existing Home Sales fell last month, ending the report's 5-month winning streak.

Some newspapers are calling it a "setback" for housing.  Others are questioning the comeback.

Rest easy, folks.  August happened to be a terrific month for housing -- despite what the press says.

The Existing Home Sales report has 3 parts to it:

• Total sales volume
• Median sales price
• Overall housing supply

Of the three, housing supply is paramount to the long-term strength of the market. The other two are periphery.  It really doesn't matter how many homes are selling, or at what price they're selling.  What's more important is the ratio of home buyers to home sellers.

Not enough buyers and home prices fall.  Too many buyers and home prices rise.  The former led us into the housing doldrums, and now the latter is leading us out.

Between July and August 2009, existing home supply fell by nearly an entire month and, since peaking 9 months ago, supply is down 23%.

Furthermore, the supply of new homes is down, too, off 34 percent on the year.

Housing supply helps us statistically define "Buyers' Market" and "Sellers' Market" and, right now, the Buyers' Market looks like its ending.  If you've encountered a multiple-offer situation, you know exactly what I'm talking about, too.

The combination of low mortgage rates, relatively cheap homes and timely tax credits turned the housing market around this year and there's more gains ahead --  no matter what the papers say.

With home supply keeps falling, a full housing recovery is just around the bend.

(Post licensed by and adapted from Bring the Blog)

The housing industry's had a rough few years. Foreclosures are way up, home values are way down, and -- pardon my french -- but mortgage underwriters are so tight that if you stuck a lump of coal up their fist, in two weeks you'd have a diamond.

For home buyers, though, the "bad news" has come with a tremendous upside.

In housing, the basic law of Supply and Demand bestowed upon buyers an unbelievable amount of negotiation leverage.  Want a lower sales price? Just ask for it. Need your closing costs paid for? Write it into your offer letter. Want a quick closing? Sure, whatever you need.

But the Buyer Heyday may be over.  At least, that's what recent data suggests:

• The supply of new homes is falling at a precipitous pace
• Existing home sales are soaring in Cincinnati and other markets
• Home buyer activity is strong on all fronts -- first-time, move-up, and investor.

Furthermore, home prices are on the rise across a wide band of U.S. markets -- the smoking gun that the Buyers' Market is ending.

For now, mortgage rates remain low and the government is still supporting first-time home buyers with a generous tax credit.   If you're on the fence about buying a home or what to do next, call or .  I'd like to be your loan officer and if by chance I'm not licensed in your particular state, I'll point you to somebody that is.

Maybe now we can say that housing has bottomed?

After 3 years of disastrous data, 19 of the 20 markets tracked by Case-Shiller improved last month -- the 5th straight month of strong data and the index's strongest showing in 3-plus years.

This is definitely something for the news van.

That said, the Case-Shiller Index remains an imperfect gauge:

1. It's limited to 20 U.S. cities, representing just 9% of the U.S. population.
2. It's on a 2-month lag, reflective of how housing was, not how it is
3. It ignore locality, grouping city neighborhoods into one big lump.

Despite its flaws, though, the Case-Shiller Index remains relevant to an improving economy.

When housing cracks first started formed in 2005 and 2006, Wall Street doubled down its bets despite Case-Shiller calling for an all-out catastrophe of biblical proportions.  Turns out, both sides were wrong, but Case-Shiller earned a ton of street cred from its call.

Today, the Case-Shiller Index is the de facto barometer for home values nationwide.

Getting back to June data, because Case-Shiller says home prices are -- in its own words -- "on an upswing", we can assume it means good things for the housing market, in general.

For home buyers, however, the news may not be so welcome.  The combination of a soon-to-expire $8,000 First-Time Home Buyer Tax Credit and a rebounding housing market means that competition for properties should increase, creating bidding wars and higher home prices.

If you're on the fence about buying a home or wondering if the time is right, according to Case-Shiller, the "right time" may have been 2 months ago.  With prices on the upswing, homes may only get more expensive.

For a pre-approval letter, and I'll get you started.

For the 4th consecutive month, the Case-Shiller Index showed a softening in year-over-year home price declines.  As a standalone story, this is news.

Even more relevant to homeowners than the annual Case-Shiller numbers, though, are the monthly ones.   According to the data, 18 of the 20 tracked markets improved between April and May 2009.  It's the Case-Shiller Index's strongest showing in nearly 3 years and yet another sign that housing is on the mend.

That said, the Case-Shiller Index is far from perfect:

1. Case-Shiller measures home values in just 20 U.S. cities.  Those 20 cities represent but 9% of the U.S. population.
2. Case-Shiller on a 2-month delay.  It is not reflective of the current state of housing, but of the way is was.
3. Case-Shiller ignores the "all real estate is local" adage.  It lumps disparate city and suburban neighborhoods together.

Despite these flaws, though, the Case-Shiller Index remains relevant to housing.

Remember -- stock markets tanked as housing went bad in 2007 and 2008.  Americans lost their savings and their homes.  Huge, historied banks went bankrupt and Fannie Mae and Freddie Mac got nationalized.  Today, a lot of people believe that rising home values could undo some of that damage.  Maybe even most of it.

And this is why the Case-Shiller Index -- however imperfect -- is still so important.  Its recent strength is surprising and may be foreshadowing the end of the U.S. economic recession.  As home prices go, so goes the economy and, recently, home prices have been rising.

All in all, it's just another brick in the housing recovery wall.

The housing industry's had a rough few years.  Foreclosures are way up, home values are way down, and -- pardon my french --  but mortgage underwriters are so tight that if you stuck a lump of coal up their fist, in two weeks you'd have a diamond.

The upside of it all is that today's home buyers have an unprecedented amount of negotiation leverage with the sellers.  Want a lower sales price? Just ask for it.  Need your closing costs paid for? Put it in your offer letter.  Want to close in 30 days?  The world is your oyster.

A look at the recent statistics, though, suggests the market is morphing.

• Sales of new homes are rising at the fastest clip in a decade
• The supply of existing homes is falling month-by-month
• Home buyer activity continues to surge

Furthermore, home prices are no longer falling in many U.S. markets.

So, all this to say, if it hasn't happened already, home buyers are about to lose their upper-hand with their sellers.  And when they do, buying a home won't be nearly the "deal" it may feel like today.  Especially once mortgage rates head back up and the $8,000 First-Time Home Buyer Tax Credit meets its December 1 expiration date.

After all that, home sellers will be back in the proverbial driver seat, moving homes for more money and with fewer concessions.  Indeed, housing data suggests that this is happening in some markets already.

They say today's housing market is a Buyer's Market.  Well, it's only a buyer's market if you actually buy.

If you're thinking about buying but are on the fence about what to do next, call or .  I'm happy to work with you and, if I'm not licensed in your particular state, I can definitely point you in the right direction.

There's an old saying that goes "All Real Estate Is Local".

In a nutshell, it means that real estate markets differ from state-to-state and from city-to-city.  But it gets even more granular than that.   Because of school district boundaries and public services, real estate markets are even different from block-to-block.

As an exercise on how this works in real life, look at the six images above.  Then, imagine each to represent a neighborhood near your home.

Note how each block of photos has its own vibe, character and flavor.  Some have dogs, some are yellow, some are hip.  Some are young, some are old, some are blurry.  Each "neighborhood" above is distinct.

Now, look at the photo below.

This photo represents the national real estate market.

If you look closely at the bigger picture, you can see your six neighborhoods mixed in. One's up in the sky, another one's in the grass, another one's in the For Sale sign, and so on.  The picture is comprised of literally thousands of "neighborhoods", each serving as a tile in a national real estate photomosaic.

It's a fitting analogy for how we often get our news on real estate.

Consider business television.  CNBC features stories about "rising home prices" in America and "an increasing number of foreclosures".  What they're really talking about the photomosaic -- not the individual tiles where we all individually live.

For a home buyer, getting that "whole picture" is about as helpful as having Al Roker report that the national temperature to be 77 degrees.

Sure, maybe the national picture matters on some levels, but not nearly as much as the ultra-local one.  We don't live in all 50 states at the same time, after all, and for a person buying a home in Cincinnati, what's happening in the Chicago condo market is mostly irrelevant.

Homes exists in one place and one place only; as a tiny little square on the face of the national real estate market.  And when we say "All Real Estate Is Local", this is what we mean.

Each real estate market has its own characteristics which drive home values, buyer activity, and average days on market.  You can't get that kind of news from TV, either -- you can only get it from a local source.

If you're buying or selling a home and need to be connected to someone that knows the neighborhood inside and out, just . I'd be happy to connect you to people I know and trust.

Each month, a real estate trade group publishes the Home Affordability Index, a measurement that accounts for home values, interest rates and family incomes to determine whether housing is getting more -- or less -- affordable for average Americans.

The Home Affordability Index a flawed report for a number of reasons.  For example, the index makes the 3 broad assumptions of:

1. A national median home value despite its complete irrelevance as a metric
2. An average mortgage rate that ignores state rate changes and LLPA differences
3. A national median income that doesn't account for Cost of Living differences

In addition, the index is easily influenced by mortgage rates.

If we account for the 0.75% increase to rates over the last 5 days, the Home Affordability Index falls by 10 points to its lowest levels since December 2008.

Each of these issues undermine the Home Affordability Index's significance to housing.  However, we can't ignore the report entirely because it's a relative finding, measuring change in costs from month-to-month.  As home values have fallen and mortgage rates have, too, both the up-front and on-going costs of homeownership have dropped.  This realization is converting a bevy of long-term renters into first-time homeowners. 

It's also fueling a boom in home sales.

In April, the number of MLS-listed homes that went under contract rose by an astounding 7  percent.  It's the biggest one month jump in Pending Home Sales since October 2001, not coincidentally, the second-to-last month of the Early 2000s Recession.

Now, not every home under contract will make it to the closing table.  It's estimated that only 80 percent of them do.  But with so many potentially sold homes , you can't help but think that the economy is going to get a nice kick in the kiester sometime mid-summer. 

See, when "pending homes" become "sold homes",  things start to happen. 

Moving supplies get ordered; new furniture and appliances get bought; painters and landscapers get hired.  Money gets spent and the economy moves forward.  This is a well-known chain reaction and it's one reason why economists say the economy can't improve until housing improves -- home buyers spend too much money to have it otherwise. 

Traders agree.  The Materials and Consumer Staples sectors were the top two performers on Wall Street Tuesday.

Pending Home Sales are rising and it's a signal of strength.  From the data, we can infer that the number of active homebuyers is higher than in months prior and that will, eventually, create pressure on home prices to rise.  It hasn't happened yet, but when the demand for homes does finally exceed the supply, home values should turnaround in whichever neighborhoods the imbalance occurs.

Meanwhile, so long as mortgage rates remain below 6 percent while the government incents first-time home buyers, that turnaround could happen sooner rather than later.

The Case-Shiller Index is a home price gauge, published by private researchers.  Using data from public records, the index compares recent sales prices on single-family homes to the last-known sales prices of those same homes, compiling the results  into a monthly report.

For example, if a home at 1060 W Addison in Chicago sold for $200,000 in 2008 and then again $250,000 in 2009, the Case-Shiller Index would say the home changed by 25% annually.

According to the March 2009 Case-Shiller Index report, home prices are down by nearly 19 percent nationwide.  Or, at least, that's the story the press is running with.  It makes for good headlines, but the data can be misleading to the average homebuyer in Cincinnati or Chicago or elsewhere. 

Home buyers shouldn't really care about annual price appreciation -- they should care about monthly price appreciation.  As in, I've been looking for a home for the last 30 days -- are home prices trending higher while I'm in the process?

When you look at the monthly Case-Shiller data, it paints a different picture.  Yes, home values are down in a broad perspective, but on a month-to-month basis, the pace of decline is slowing.  15 of 20 markets covered by Case-Shiller Index either improved, stayed flat, or declined by 0.2 percent or less. 

 Numbers like that are a lot less scary than today's papers' headlines.

All of this notwithstanding, however, because of its methodology, the Case-Shiller Index remains flawed and imperfect.  Most obviously, the report only figures home price data from 20 cities across the country.  The 20 cities, you'll note, aren't even the  20 most populated ones.

• Houston is omitted from Case-Shiller.  It ranks #4 in population.
• San Antonio is omitted from Case-Shiller.  It ranks #7 in population.
• San Jose is omitted from Case-Shiller.  It ranks #10 in population.

Tampa, however, as the 54th most populous city, is included.

Secondly, the Case-Shiller Index is not a "real-time" report.  It's two months lagging.  May's report is a study of March home prices and a lot can happen in a 2-month period.  For example, in the last 60 days, mortgage rates fell to new all-time lows and the first group of buyers using the $8,000 first-time home buyer tax credit program have written sales contracts on homes. 

This data is not reflected in the May Case-Shiller Report.

And lastly, we can't ignore the Case-Shiller Index's irrelevance as a home value gauge because because home values can't be summarized on the city-level any more than they can be summarized on a country-level.  Each real estate market has its own character and flavor, broken down into areas, neighborhoods and street. 

There's a different appeal to living in Mason, Ohio versus Hyde Park, Cincinnati, Ohio, most locals would know, but Case-Shiller would lump them together anyway creating a false expectation for buyers in both areas.  The best way to know what local home prices are doing is to talk with a skilled real estate agent in your area who has access to real-time data. 

If you want a referral in your home market -- .

Despite its flaws, however, the Case-Shiller Index is still important.  It helps to identify broader trends in housing and housing is expected to lead the economy out of recession.  Therefore, watching the Case-Shiller Index can provide foresight into the timing of an economic inflection point.

After 2 straight modestly-mild reports, we may be nearing that point now.

Homebuyers are back.

According to data culled from the Multiple Listing Services, the number of homes under contract increased for the second straight month in March -- additional evidence that the housing market is getting back to Business Time.

Properties in this in-between stage of the homebuying process are known as "pending" and because 80 percent of homes under contract "close" within 60 days, the Pending Home Sales Index can be a semi-reliable predictor of future real estate activity.

We say "semi-reliable" because the Pending Home Sales Index is somewhat imperfect:

1. It doesn't measure new construction sales
2. It doesn't track For Sale By Owner homes or auctions
3. Its sample set is just 20 percent of all MLS transaction

Furthermore, today's mortgage climate can be tough.  Some percentage of pending home sales will ultimately fail to close because financing is unavailable.

All of that aside, the Pending Home Sales Index offers a terrific look at buy-side demand for housing, a primary driver of home values.  Nationally, the index is up 3 percent from March and across the Midwest -- home to Ohio, Illinois and Wisconsin among others -- pending home sales are up 8 percent annually.

More demand leads home prices higher.

When pending sales rise, it's a bona fide signal of housing market strength; we can infer from it that the number of active homebuyers are growing.  And, why wouldn't they be?  Homes are relatively cheap for people right now, mortgage rates are making them cheaper, and the government is throwing giving up to $8,000 in incentives to people that qualify. 

It's no wonder that half of March's homebuyers were first-timers.

Now, it's worth repeating -- just because the Pending Home Sales Index is on its second straight uptick doesn't mean that all these homes will necessarily close.  It does tell us, however, that more buyers are finding "now" to be a good time to re-enter the market.  It's this sort of insight that makes the Pending Home Sales Index worth tracking because the index points to higher home prices in the months ahead.

When buyer demand rises, the real estate market as a whole is rarely far behind.

Sometimes, it pays to look at the bigger picture.

With respect to the health of the housing market, now is one of those times. Despite what you're reading, the industry-wide housing recovery is well underway and it's based on basic economic principals that have held for hundreds of years.

Because of Supply and Demand, we can rationalize that the end of housing's freefall is in sight and that this is not a false positive.

Unfortunately, because of its chronic myopia, the American media-at-large is failing to connect the dots for the general public. 

Here's what I mean:

1. The number of "used homes" sold is rising. The press harps on falling prices.
2. Homes under contract are rising. The press ties it to "fire sales".
3. Builders cut new construction. The press says the collapse is accelerating.
4. Banks stop foreclosing. The press says it from sociopolitical pressures.
5. Fannie Mae lets investors expand their portfolios. The press ignores the story.

It's not that the press is wrong -- they're not.  It's just that the press is looking at each story individually instead of as a whole. Yes, prices are down and many homeowners are hurting.  Nobody will dispute that. 

Economic analysis, though, is like a Seurat. The story is not in the points, but how the points fit together.

Taking a step back from the headlines, we clearly see the other side of the story, the one that shows that the number of buyers are increasing; that builders are cutting back; that banks are keeping homes off the market; that Fannie Mae is giving investors permission to bid at auction. 

The Supply and Demand curve is shifting. It's providing the framework for a national housing recovery.

But it doesn't end there.  We also have to account for the recently-signed-into-law American Recovery and Reinvestment Act of 2009, a/k/a ARRA, a/k/a The Stimulus Plan.  In it, Congress grants an $8,000 tax credit to first-time home buyers.  Again, though, the press focuses on the wrong issue.  Instead of talking about showing that an $8,000 tax credit could add to the buy-side demand for housing, the press says a $15,000 tax credit would have been better.

Look. All the pieces are in place, folks.  Demand is rising. Supply is falling. The government is intent on keeping mortgage rates low.  It's very likely -- statistically -- that the housing recovery is already underway.  Home prices, after all, are a symptom; home inventories are a cause.

And, like A Sunday Afternoon on the Island of La Grande Jatte, if you focus on the minute details, you're going to miss the bigger picture. Just ask Cameron.

The Pittsburgh Steelers have won 5 Super Bowls in the history of its franchise and -- for the sake of the housing markets -- let's hope this year doesn't make Number 6.

In 4 of the 5 years the Stillers won it all, the national real estate market floundered over the 12 months immediately following their championship.  Check it out:

• 1975: Home prices fell 1.37%
• 1976: Home prices rose 3.22%
• 1979: Home prices fell 2.84%
• 1980: Home prices fell 4.81%
• 2006: Home prices fell 3.60%

Meanwhile, let's look at the championship history of the Arizona Cardinals franchise:

• 1925: Home prices rose 5.2%
• 1947: Home prices rose by 21.3%

Clearly, this spring season's home sellers should be rooting for the Cardinals Sunday.

But, it doesn't stop there.  More than few economic analysts fingered the housing market as our nation's way out from recession.  It's an idea that easy to latch onto, after all.  As housing prices have plunged, mortgage lending has tightened and consumer spending has gone la bye-bye.

A reversal in home prices could turn the economy around.

Therefore, aside from two major caveats -- (1) that there's no such thing as a national real estate market, and (2) that median sales price is an irrelevant statistic -- it's pretty clear: it's in America's best interest for the Steelers to lose the Super Bowl.

So, in the name of all that is patriotic and good, here's your personal plan for Super Bowl 43: Cheer for the Cardinals, jeer for the Steelers. Anything else is anti-American.

Sources
Irrational Exuberance, 2nd Edition
Robert J. Shiller
Cowles Foundation for Research in Economics and International Center for Finance

http://www.econ.yale.edu/~shiller/data/Fig2-1.xls

U.S. Median Home Prices

http://mysite.verizon.net/vodkajim/housingbubble/US%20Median%20House%20Prices.xls

If you only looked at the headlines, you may have missed the important part of December's Existing Home Sales data. 

While most papers trotted out some version of a "Home Sales hit 17-year low in 2008" story, astute observers noticed that national housing supplies cratered last month, providing a support point for a battered U.S. economy.

Based on the number of active home buyers and sales volume nationwide, there is now 9 months worth of housing supply -- down from November's reading of 11 months.

When supplies fall, prices rise.  It's basic economics.

Look at this chart from the Wall Street Journal.  It shows the cities with the tightest housing supply as of December 2008.  In particular, note the stat lines for foreclosure havens Sacramento and Orange County, California:

• Both cities appears to be shedding home inventory quickly
• Both cities appear to be shedding home values quickly, too

The two points are related, of course, and it helped push the West Region to the forefront of December 2008 home sales activity.  And then there's the secondary effect from outsized, West Region activity (which many analysts say is foreclosure-fueled).  The West literally caused the national median sales price to plummet last month, directly leading to the other headline run by newspapers today.  Nationally, the median sales price is down by $30,000.

To that, I say: Who cares?  

Statistically, Median Sales Price means nothing to an active home buyer or home seller.  It's just the price point at which half of all homes sold for more, and half of all homes sold for less.  The median is subject to influence from all sorts of irrelevant factors, including:

1. Home sales of starter homes outnumbering that of luxury homes
2. Home sales in "cheap" markets outnumbering that in "high-cost" markets
3. An uptick in "firesales" or other heavily-discounted homes

And not to mention that the median sales prices of the national market is irrelevant anyway because a nobody buys in the "national real estate market" -- they buy in Blue Ash, Ohio, for example.  Or Lincoln Park in Chicago.  And each of those individual markets have their own forces, separate from what's happening in Sacramento.

If we only read the headline, we'd miss that point and it's why the biggest takeaway from December's Existing Home Sales data is that housing supplies are down in many U.S. markets.  This provides support for home prices and points to a strong Spring Buying Season.  Sellers should be smiling:  Reduced Supply + Constant Demand =  Higher Home Prices. 

And then the cherry: December's data doesn't account for new home buyers since mortgage rates fell late last year.  Judging from the purchase acitvity in my own mortgage practice, I feel that buy-side activity is up in not just my main markets of Cincinnati and Chicago, but everywhere.

If it's true that falling prices bring out the buyers, expect housing strength through early-2009 until the market finds its balance.

If home prices are all about Supply and Demand curves, it looks like the national recovery is well-underway -- the housing inventory is falling in most major markets.

As reported by ZipRealty, the number of single-family homes for sale nationwide declined by 1.6 percent in October.

What's most interesting about the data, though, is that healthy markets like Seattle and Chicago played as much a part in reducing national home supplies as previously hard-hit cities like Miami and San Diego.

There are a few reasons for home supply dip:

1. Home buyers are keenly aware of the negotiation leverage they have over sellers and they know how to use it
2. Banks are getting good at selling foreclosed homes

These two elements combined to help homes sell like hotcakes during what is typically a "slow" month in real estate, boding well for the housing market going forward.  The figures are consistent with the other housing data from last month that showed more homes under contract and more homes selling.

But, wait.  There's more!

Over the past few weeks, Chase Mortgage, CitiMortgage, Bank of America and Fannie Mae have all enacted some form of moratorium on home foreclosures.  This, too, should lead to lower inventory levels because fewer homes will head for the auction block.

In every market, the value of real estate is based on scarcity. 

If the number of homes for sale dwarf the number of active home buyers in that particular market, home prices are going to fall.  They have to.  It's basic economics.  And, that's precisely what we've seen over the past few years -- home supply outpaced home demand for them. 

But, based on the chart above, a series of data points from October, and the political pressure to help homeowners in need, expect for home supplies to fall in 2009, taking home buyer's negotiation leverage with it.

For the third straight month, at least 15 of the nation's 20 largest real estate markets showed relative monthly improvement in May 2008, according to the S&P/Case-Shiller Home Price Index.

I use "relative monthly improvement" as another way of saying that markets are "less worse than they were" and that's good for the housing market (although you wouldn't know it by looking at the headlines). 

Instead of pulling the positives out from the data, newspapers are highlighting the year-over-year, cliff-diving-like decline in prices. 

Now, it's not wrong to look at annual trends in home prices, it's just a little bit misleading.  Remember: Active home buyers are probably seeing something completely different from what the papers are saying they should be seeoing.

See, year-over-year comparisons are fine for identifying long-term trends, but as it relates to an active home buyer, annual data don't mean diddly.  It's the short-term trend that matters.

The obvious example: If you've been shopping for a home over the last 3 months, you've probably noticed the market slowly slipping away from you, and moving into the sellers' favor. 

When you see "all the good homes" go under contract, or sellers regaining their negotiation power, it's your sign that the market is shifting.

In other words, if you're buying a home now, the real estate market of 12 months ago is irrevelant.  What you're going to pay for a home is based on market activity today, not activity from 2007.