Is the housing market on the verge of recovering? Is it recovering already? If you're not sure whether you believe the economists and pundits who think they can see the future, here are some tools that will help you make up your own mind.

In Pictures: 5 Simple Ways To Invest In Real Estate

Pending Home Sales
According to the National Association of Realtors, pending home sales, or the number of homes that are under contract and in the process of selling, rose by 8.2% in February (the most recent month for which data are available). The index is also an encouraging 17.3% over what it was a year ago.

Pending home sales are considered a leading indicator, meaning that they can forecast the direction the economy is headed. Leading indicators cannot truly predict the future, though, so they should be taken with a grain of salt. (To learn more about leading indicators, read Leading Economic Indicators Predict Market Trends.)

The increase in pending home sales could be less indicative of a genuine improvement in the housing market, however, and more indicative of the pending expiration of the homebuyer tax credit, which requires homes to be under contract by April 30. (To learn more about the homebuyer tax credit, read Claim the Homebuyer Tax Credit Before It Expires.)

Housing Starts
Housing starts are an important leading indicator of not just the housing market, but the economy as a whole, because people are more likely to start new residential construction projects when things are looking good. Housing starts don't look promising right now - the U.S. Census Bureau reported that privately owned housing starts in February were 5.9% below January and 0.2% above February 2009. (Learn more about housing starts in Economic Indicators: Housing Starts.)

New and Existing Home Sales
New home sales reached a record low in February with 308,000 sales, according to the National Association of Home Builders (NAHB). In 2005, 1,283,000 new homes were sold per month on average. The good news is that new home sales increased by 20.8% in the West, one of the regions hardest hit by the housing crisis.

More good news comes from statistics on existing home sales. About 5 million existing homes were sold in February, up from about 4.7 million a year ago. (For more on this subject, read Economic Indicators: Existing Home Sales.)

Home Inventory
Home inventory is another leading economic indicator. A greater supply of homes-for-sale indicates weak market conditions. The NAHB also reported that as of February 2010, there were 236,000 new homes, or 9.2 months' supply, on the market, the worst number since May 2009. There was also 8.6 months' supply of existing homes on the market, the worst number since August 2009. However, these numbers are better than those from a year ago, when the supply was 11.1 months for new homes and 9.7 months for existing homes.

Housing Affordability
The National Association of Realtors reports that in February 2010, the median price of an existing home in the United States was $164,300 and the average mortgage rate was 4.99%. With median family income at $60,498, a family's housing payment would only be 14.2% of its income, well below the 25% cap many financial experts recommend for keeping the monthly budget under control.

Compare these figures to 2007 averages, when a house cost $217,900, mortgage rates were 6.52% and median incomes were about the same at $61,173. While falling home prices aren't good, improved home affordability could help the recovery by putting home ownership within reach for more families, especially the first-time buyers who have historically helped end housing slumps.

However, credit is still difficult to obtain, and unlike investors, most families can't buy homes without a mortgage. What's more, despite how far prices have fallen, there are still plenty of people in high-cost-of-living cities who can't afford to buy anything.

Mortgage Applications
The Mortgage Bankers Association (MBA) issues its Weekly Mortgage Applications Survey that reports on the number of people applying to borrow money to buy a house. For the week ending April 9, mortgage applications declined by 9.6% over the previous week. The four-week moving average, which is helpful in smoothing out the ups and downs of the weekly figures, was down 6.2%. The MBA stated that an increase in mortgage insurance premiums for FHA loans, which are attractive to buyers because of their low down payment requirements, may have contributed to this decline.

Mortgage Interest Rates
For the week ending April 9, the MBA reported that the average contract rate on a 30-year fixed-rate mortgage was 5.17%. Mortgage rates have been at historic lows for months, wavering between 5% and 6%. Low mortgage rates help entice buyers, but they can't fix a bad housing market on their own. The Consumer Confidence Index, a survey of how optimistic or pessimistic people feel about the economy, has been up and down in 2010, and consumers still feel pessimistic about the job market. The thousands of Americans who are unemployed couldn't get a mortgage even if rates were 1%. (For related reading, see Consumer Confidence: A Killer Statistic.)

Real Estate Mutual Funds
According to Morningstar, real estate mutual funds returned 9.4% in the first quarter of 2010, one of the highest return of any mutual fund category. Over the last year, they have also led all mutual funds with a gain of 105.3%. Shares of Vanguard's REIT ETF (VNQ), which invests in a wide range of real estate companies, gained 10% in the first quarter of 2010 and over 69% in the last year. These returns show investor confidence in the overall real estate market.

REITs are not limited to investing in the residential housing market, however; VNQ's largest holdings, for example, include Simon Property Group, which owns numerous shopping malls; Vornado Realty Trust, the owner of many office and retail buildings; and Public Storage, the well-known storage unit rental company.

Mixed Signals
Major housing market indicators currently provide mixed signals about how the housing market is doing. High unemployment rates, the continued difficulty of obtaining credit and the pending expiration of the homebuyer tax credit make it hard to tell where the housing market is headed at the moment. Keep an eye on these indicators and wait for clear and consistent signals to emerge before you consider the housing market to truly be recovering.

Don't miss what's happening this week in the financial world. Check out Water Cooler Finance: Buffett's Bank Fraud And Financial Eruptions.

Related Articles
  1. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  2. Home & Auto

    Economics of Owning a Rental Property

    Learn how to find suitably priced rental property and the right rent level. Determine what maintenance costs to expect and what tax breaks are available.
  3. Home & Auto

    Should You Buy A House At Auction?

    In theory, many of the best properties are auctioned. But auctioned properties aren’t always hidden gems.
  4. Home & Auto

    5 Mistakes That Make House Flipping A Flop

    If you're just looking to get rich quick, you could end up in the poorhouse.
  5. Entrepreneurship

    Top 10 Features Of a Profitable Rental Property

    Find out which factors you should weigh when searching for income-producing real estate.
  6. Bonds & Fixed Income

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.
  7. Investing Basics

    8 Numbers For Evaluating A Real Estate Investment

    Having a strong grasp of a real estate investment’s finances can mean the difference between a lucrative position and possible bankruptcy.
  8. Professionals

    Alternatives: Will a Market Correction Lift Them?

    When were are surging, advisors and their wealthy clients asked why they should bother with lagging alternatives. Will that change with a correction?
  9. Investing Basics

    Water Investments: Will They Sink or Swim?

    Will these water-related investments sink or swim?
  10. Stock Analysis

    In Focus: Water Scarcity

    After a discussion, sponsored by CDP, we share the importance of water disclosure as it relates to businesses operating amid increasing water scarcity.
  1. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  2. Can hedge funds outperform the market?

    Generating returns that exceed those provided by the broader market is the goal of nearly every investor. However, the methods ... Read Full Answer >>
  3. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  4. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  5. How are American Depository Receipts (ADRs) priced?

    The price of an American depositary receipt (ADR) is determined by the bank or other financial institution that issues it. ... Read Full Answer >>
  6. How are American Depository Receipts (ADRs) exchanged?

    American depositary receipts (ADRs) are bought and sold on regular U.S. stock exchanges, either in the over-the-counter market ... Read Full Answer >>

You May Also Like

Trading Center