The first stage of the rebound is well underway in the Twin Cities real estate market.  How it plays out remains to be seen but history and current trends give us good clues.  Markets are cyclical and excesses, whether up or down, sew seeds bearing the opposite reaction.  The harder the fall, the greater the rebound, be it in strength or length.

Anatomy of a Rebound

Stage one of the rebound is reduced seller activity.  In 1989, listings processed began a ten year decline.  This led to a real estate boom, starting several years later.  In 1999, listings began a seven year incline.  This led to the current down market, which began in late 2005.  Listings peaked in 2006, and are steadily declining.  This first stage of the rebound has been underway for over a year and will lead to the next important stage; reduced inventory.

Inventory will certainly peak this summer if it hasn't already last year.  Active listings in the median to upper price ranges, condos, and non foreclosures are already down.  New construction inventory is down considerably from peak levels.  The all important "supply demand ratios" (SDR) will likely peak soon.  There is a good chance they will be down in year over year comparisons by the end of this year or early next.  The SDR is perhaps the most important leading indicator of where prices are heading.

The third and most important stage of the process will be increased buyer activity.  When and how this occurs is the key statistic to watch.  All eyes should be on year over year comparisons of pending and closed sales late this year and early next.  This will be the first chance to see meaningful comparisons after the "credit crunch" hit in August of 2007.  Sustained growth in buyer activity, combined with a declining SDR, will eventually put upward pressure on prices, the final stage of the rebound process.

Not So Fast

The rebound will be slow and gradual, with spurts and stalls.  For those who see the world in "black or white", "right or wrong", "this way or that", the following concept may be hard to grasp.  Although the rebound is well underway, the market is still declining.  The two conditions overlap each other.  In fact there are always upward and downward pressures acting simultaneously in all markets.  In addition, market conditions are measured in different ways, each one peaking or bottoming out at different times.  Seller activity peaked in 2006, inventory likely in 2007, buyer activity may bottom out this year, and prices this year or next.

But even if conditions consistently improve, we will remain in a buyers market for some time, as the SDR is far from balanced.  For a more detailed explanation see last year's article "The Buyers Market, In it for the Long Haul".  And as soon as there is hint of improved market conditions, sellers will try to jump on the bandwagon.  In addition, there are a number of foreclosures still to come.  So while the rebound will bring us an improved market, there is no sellers market or "boom" on the horizon.

So when is the best time to buy?  That depends.  If you're looking for a good quality property, that inventory peaked last year.  But there still are and will continue to be good options.  If you're looking for something cheap, it can't get much better than now.  In reality, there are good buys in every market.

The best bet is to buy when you are most ready.  Take your time, do your research, and choose quality, in property and financing.  Most importantly, think of it as a long term investment, or better yet, don't think of it as an investment at all.  It is, first and foremost, your home.  And that is worth far more than what can be measured financially.