Are Home Sales Poised for a Rebound?

The Journal News today covered recent news about an uptick in sales activity in December:

An index that tracks signed contracts to purchase existing homes rebounded in December, as buyers snapped up properties at deep discounts, especially in the South and Midwest.

It was the second positive sign in the past two weeks for the U.S. housing market, and may indicate that a bottom is forming - at least for home sales.

This follows similar articles in other media, including an article last week in Forbes that discussed how the activity has picked up in markets that were particularly hard-hit by the real estate correction -- in particular, markets like California and Las Vegas that were the first to show the effects of the slowdown.

What does this mean?  Well, regardless of whether you call this a correction or a bubble or a meltdown or any other characterization, the basic laws of supply and demand still apply: in a situation where supply is fixed, when prices go up, demand comes down; when prices go down, demand tends to go up.  What we saw three years ago was demand drive prices up, then a lot of the demand went away, and now prices are coming down to a point where demand comes back.

We have not seen activity pick up in our region yet, but the fact that sales in California and Nevada are way up from last year is a sign that we'll see activity pick up here when prices get to an attractive point.  Given that our prices never appreciated here they way they did in California and Nevada, I don't think prices have much further to go before demand picks up.

A few cautions: all of this assumes that some of the uncertainty in the credit markets, and the general economic outlook as a whole, doesn't stifle demand.  If people are afraid that they won't have a job next year, they're not likely to buy a home.  But the basic principles of supply and demand say that now that prices have come down significantly in Westchester and the Hudson Valley real estate, we should see more activity in the market.