When Will We Know the Market Hit Bottom?

This question comes up all the time and for good reason. Buyers want to know if they are buying at the right time or if they should wait until the market bottoms out. This is a pretty difficult question for anyone to answer whether they are a celebrated economist or a member of the Psychic Friends Network. When? I don't think anyone can say for certain. Perhaps later this year? Perhaps next week.

However, I did attend a very interesting seminar given by noted economist John Tuccillo where he presented a very specific formula that won't predict when this will occur but will show when it has come to pass.

That's the rub in all of this. You really only know you've hit bottom once you are no longer there. I know it seems like a bunch of mambo-jumbo but this is economics, people! It comes with the territory.

Anyway, Tucillo's take is this. There are three Signs of Recovery that you can watch for that will show the market is no longer in decline.

1. A Decline in New Listings
2. A Decline in the Days on Market
3. The Ratio of Sales Price to List Price Begins to Rise

It's pretty simple really. A decline in New Listings produced less inventory, reducing downward pressure on prices.

A decline in Days on Market shows houses are selling faster and the faster they sell the more likely the will sell closer to their List Price or in a Multiple Offer situation where Buyers try to outbid each other.

When the Sales Price to List Price ratio rises we know that Buyers are on board with what the Sellers are selling.

Tucillo said that you need about 3 straight months of this pattern to know that you are there and you can compare this month to last month, or the market a year ago, as a frame of reference.

OK so where are we right now?

1. Decline in New Listings
Looking at the latest figures from the Minneapolis Area Association of Realtors New Listings are down 1% over the past three months from where they were a year ago. So we are 1/3rd of the way there!

2. Decline in Days on Market
MAAR figures show we are UP 4.6% from one year ago -up to a sobering 158 Days on Market, on average, until sale.

3. The Ratio of Sales Price to List Price Begins to Rise
Right now this ratio is also in decline with homes selling for an average of 91.2% of the list price and this downward trend has been occurring since May of 2007 when it was 95.9%.

OK so, we have a ways to go but after hearing Mr. Tucillo speak I am a lot more encouraged about where we are at locally. He said we could likely see a couple more quarters of decline here but the signs of recovery will likely start to appear in the 4th quarter. He also is pretty convinced our national economy is heading for a recession but that it will be short and mild.

We'll have to see what happens...in the meantime I will continue to track these numbers so we will be able to say with confidence that we have passed the bottom.

Did I really just write that last sentence? No wonder I skipped out on Econ 101 when I was at the U!