Chief NAR economist Lawrence Yun published an article on the organization’s website this week about the “Road to Normalization.”

He observed that throughout the summer, the housing market has been relatively busy. According to Yun, recent home sales numbers (both pending and closed) indicate “that housing market recovery prospects have improved considerably.” In June, pending home sales (contract signings, not closings) have risen for the fifth consecutive month. There has also been a decrease in inventory and distressed property home sales.

Here’s some more numbers:

- Pending Home Sales Index reached 94.6 in June, highest mark in two years. That means, 94.6 percent of the homes under contract actually closed. In January, that number was 80.4 percent.

- The inventory has gone down. In June 2008, the inventory was 4.5 million. In June 2009, inventory was 3.8 million. That translates to a 9.4 months’ supply at June’s sales pace. Last year, the supply in months was in the double digits.

There are a couple other factors at work.

Shadow Inventory: This would include foreclosed inventory that banks are holding on to, masking the trend. This would also include people holding on to their properties until the market changes. Yun says, “this view is not panning out in the real world. The recovery process has been uneven across the country. Those markets that have been recovering for some time should already have witnessed the rise in the release of these shadow inventories onto the market. And the data shows that these recovering markets have consistently recorded inventory trends declining and declining.Whatever the level of shadow inventory that was present, the impact has been minor.”

Foreclosure: Many people, especially the unemployed, are worried about foreclosure. Yun says, “It is likely that foreclosures will continue to rise through the remainder of the year. But unlike this time last year, today’s home buyers are fighting over the foreclosed properties. Consequently, any newly foreclosed homes will not linger in the marketplace for long.”

Why is the housing market the key to sustainable groth? “It is because consumers’ wealth is tied to the strength of the housing market. When home prices fall, people feel poorer and so reduce their spending. Consumer spending is vital to economic growth (in fact consumer spending accounts for around 70 percent of the nation’s GDP). Furthermore, falling prices, lead more homeowners to be deeply under water and thus lead to rising foreclosures. Rising foreclosures in turn will eat up bank capital and so lower the flow of credit. With less money able to circulate, the economy could face a double-dip recession.”

Yun continues, “If home values were to stabilize or even grow, then households will regain confidence to spend more on all items as their wealth situation improves. Rising home values will also reduce foreclosures and permit banks to lend more, which will help businesses – small and big alike – to borrow more easily to expand and for the economy to grow. In addition to the broad macroeconomic and credit market stabilizing impact, each home sale generates about $65,000 in economic activity: from using moving trucks to buying furniture and appliances. Furthermore, the thinning of the inventory will allow for home builders to start hiring construction workers. Rising home values also help with local tax revenue – this is money that stays in your community. In other words, this is local money for local people.”

Related...

• January 9, 2012 -- When Should I Lower the Price of My Home?
• February 28, 2011 -- Survey Says Americans Value Homeownership
• June 10, 2010 -- Existing Home Sales Rise in April
• March 30, 2010 -- Sellers: Avoid These Pricing Mistakes