Signs point to bottom in housing

Worst appears past

If the economy is to start a permanent recovery and finally pull itself out of the worst recession in over 70 years, the three-year-plus decline in the housing market must come to an end.

Exports are showing signs of life and many major corporations signaled that they are seeing signs of stability. However, a weak housing market and falling prices would likely keep pressure on banks and limit gains in the economy. Fortunately, recent data are beginning to paint a brighter picture for the beleaguered industry.

Yesterday, new home sales, which make up less than 10% of the market, posted its largest gain in eight years. And the data comes on top of strong increases in single-family housing starts that were recorded over the past two months.

Today, the S&P/Case-Shiller Home Price Index recorded its first monthly rise in almost three years, which follows the 0.9% rise in May home prices reported last week by the Federal Housing Finance Agency.

In the meantime, pending homes sales have jumped but existing home sales, which make up over 90% of the market, have displayed more modest gains.

The National Association of Realtors blames the smaller-than-expected increase in existing sales on new rules for appraisals, which have delayed or scuttled some deals.

One index that has yet to signal a bottom is the Purchase Index from the Mortgage Bankers Association. This weekly look at mortgage applications remains stuck near the bottom, and I'm unsure why we haven't seen an improvement. And the overhang from foreclosures is a risk that still must be considered.

But given that all the other major indicators are suggesting the worst is past, it appears the housing market is finally making its long-awaited turnaround.