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The pending home sales index figure released earlier this month marked a third straight month of rising pending sales. First-time buyers are responding to the incentives of rock-bottom mortgage rates and the first-time buyer tax credit to pick up relatively low priced homes.  Figures in the past year suggest about 45 percent of buyers have been first time buyers, higher than in recent years. 

A high proportion of the transacted homes are distressed, either in foreclosure or requiring a lender approval short-sale, with deep discounted prices. By the fourth quarter, existing-home sales are projected to be about 15 percent higher compared to the comparable period the year before. First-time buyer transactions will help existing homeowners sell and move up. All the activity helps absorb inventory.

Home sales in the hard-hit California market have recently reached levels that are nearly twice as high compared to when they were in the trough. Evidently the California housing market is experiencing a phenomenon: potential buyers suddenly wanting to enter the market all at once. People have waited for the best time to enter the market.  Home prices there are highly attractive.  So when some buyers started to enter the market, other bystanders just couldn’t let others take advantage of the great buying opportunity. Multiple-bidding on lower-priced homes is common in California. People who lose during a bidding war come back with determination and hope their next bid will be the highest.

What does this mean for home prices? Though the year-over-year price measurement will continue to show declines, the month-to-month price trends will more likely be on an upswing. In short, people who buy in June 2009 will likely see a price gain in June 2010.  Will other parts of the country follow California and witness a sharp upturn? We’ve seen evidence of that already occurring in Nevada, Arizona, and parts of Florida.  The sharp upturn is likely to occur in markets where home prices are overshooting downward.  Most of Middle America may not encounter any sharp upturn in housing because it never experienced the same exuberant big boom and big bust to begin with.

Some things will take a turn for the worse before improving. Employment conditions will certainly have an impact on any housing recovery.  Job losses will continue through the remainder of the year.  Foreclosures will rise as a result, putting additional downward pressure on prices. 

But, nearly 90 percent of the U.S. workforce is employed.  Rates are at rock bottom.  The first-time buyer tax credit is in place through November.  Housing prices are at their best level in years.  Now is definitely a great time to buy!