The latest housing data released by the National Association of Realtors (NAR) on February 25, 2009 may look grim. It was reported that sales of existing homes fell 5.3 percent in January, to an annual rate of 4.49 million units, from a 4.74 million rate in December. It was the weakest showing since July 1997. About 45% of total sales involve distressed property transactions, including foreclosures. 

The median sales price tumbled to $170,300 from $199,800 a year earlier and $175,700 in December 2008. In other words, the existing home sales has fell to the lowest level in 12 years and prices are at now near six-year lows.

However, there is a glimpse of hope buried amongst these data. The over-supply inventory of existing homes on the market is roughly 1 million. But this supply has now been in decline for several consecutives months. The number of existing homes for sale has decreased by 800,000 units from December 2008 to Jan 2009. The NAR estimated it will take 9.6 months to sell the current inventory.

It is easy to see that when the sales stabilize, there will be fewer house available to purchase, which will help housing prices to solidify and hasten the pace of turnaround in the US housing market and in the economy.

Lawrence Yun, the NAR’s chief economist stated “The drop in total inventory is an encouraging sign because the number of homes has declined steadily since peaking in July 2008, and inventory is at the lowest level in two years.”

Potential investor should watch out closely for this new equilibrium of supply and demand. In the near future, the fundamentals of supply and demand will work itself out and stabilizes the US real estate markets again.