I wanted to wait a few weeks to be sure, but I think it's time to call it, the market has hit bottom!

The result of good fundamental market trends (sales activity continues to be reliable, and new listings are coming on the market more slowly) hitting bottom means we'll see improvement in the real estate market in the future. 

The graft below showing the total inventory of homes for sale shows that we now have fewer homes on the market today than at this time last year.

This reduction in the number of homes for sale is in my mind the most important factor to consider when discussing the current market.  The current over supply (a Buyer's Market) is essentially the problem with real estate.  As supply comes into balance with demand, appreciation rates will start climbing.

Average Sales Price and the Number of Transaction are also important factors to be watching, however not as indicative of the future.  Average sale prices are down in many areas (up in others) and may continue to drop, as a result of the large volume of deals in low price ranges (mostly investors buying up foreclosures).  Similarly the number of overall sales is down in many markets (new construction especially).  Here again, I'm not worried, sales volume has been rising for years, and rising faster than population growth.  People move far more often today than in the past.  So the number of sales is down, how often do we expect people to move, every other year?!

Don't get distracted from the good news, and see the forest through the trees!  Supply and demand have begun to come back together after moving farther and farther apart. 

Next time someone tells you prices are down, or sales are slow; tell them this, "We have fewer homes on the market now than at this time last year.  This is a sustained trend, and will continue, eventually bringing supply and demand into balance, resulting in rising home values."  Then casually ask if they think this might be a good time to put some money into real estate?