When the housing rebound comes

How you'll know when home prices are finally recovering.

By George Mannes, Money Magazine senior writer

(Money Magazine) -- If you're the sensitive type of homeowner, you may want to skip the rest of this paragraph, which recounts the unrelentingly grim news about home prices.

At least 42 percent of major housing markets are in decline, with some projected to fall by double digits over the next five years.

One alarming sign: The National Association of Realtors has reversed its usually sunny outlook and is now predicting a 1 percent drop nationwide in existing home prices in 2007, the first such prediction in the four decades since NAR started tracking prices.

Still, no bear market lasts forever, and indeed, predictor NAR, quickly recovering from its unusual flash of pessimism, is forecasting that prices will bottom out this quarter.

How will you know?

Because housing markets are intensely local, it won't do much good to check national figures. Instead, stay alert to leading indicators of recovery in your local market, such as:

Inventory is declining

A local broker should be able to tell you the months' worth of inventory - that is, the estimated amount of time, given the current pace of sales, that it would take to sell all the homes currently up for sale.

In markets with fewer than 6.5 months of inventory, homes tend to be appreciating faster than inflation, says Mark Dotzour, chief economist at the Real Estate Center at Texas A&M; above 6.5, prices are lagging inflation.

Above nine or 10 months, prices start to drop, creating an ice-cold market for sellers. Compare the current data with that of the previous few quarters to see whether the trend is downward or upward.

Houses are selling faster than they used to

While you're asking your broker about inventory, ask how long the average house that sells has sat on the market and how that compares with figures from last quarter or six months ago.

Generally, if the average house is selling in less than a month, it's a seller's market. By 90 days it may be a buyer's ball game.

Realtors are feeling better

Your broker's thoughts might not be reflective of what's really going on. So check the website RealtyTimes.com and click on Local Market Conditions to read agents' reports on specific markets with ratings from 1 (buyer's) to 5 (seller's).

The agents have an agenda - they pay for the privilege of posting - but their collective wisdom and specific entries can help you determine the mood.

"Buyer activity is moving cautiously upward yet not returning to the high levels seen in 2004 and 2005," writes one realtor in Minneapolis.

Sellers are acting less desperate

Either by reading the classifieds or by scanning FOR SALE signs on your way to work, pick a handful of homes comparable to yours or one you might buy (think similar size and school district) and check on them weekly.

Does the asking price get reduced? Are the owners constantly holding open houses? Are they throwing in incentives? Does the ad gain more exclamation points?

All this should give you a hint, says Sacramento broker Elizabeth Weintraub. "If you're seeing no decrease in FOR SALE signs, balloons and banners and OPEN HOUSE signs, and the SOLD signs aren't popping up right away, that's pretty much telling you it's still a buyer's market."  Top of page