Some good news today: The National Association of Realtors (NAR) reports that pending home sales - which are contracts signed, not closings - rose 6.3% in April from the month before (they’re still down 13% year-over-year). This leads the NAR to proclaim: “Bargain hunters have entered the market en masse.”

Okay, let’s take a little moment here. Yes, it’s good news that people appear to be buying homes again, but even the NAR admits they’re buying homes in the areas where prices have fallen the most. More houses are becoming affordable, and good deals on properties abound.

But prices are still in a downward spiral. The NAR actually revised down their projections on median home prices for 2008, from a 2.4% drop last month to a 6.4% drop now. That’s one heck of a change in projections! And that’s what makes me nervous.  A lot of that drop is due to the rise in foreclosures. Foreclosed homes are now making their way to the Multiple Listing Service like never before, so they are being lumped in with the pricing data. The most recent survey from the Mortgage Bankers Association shows the delinquency numbers are not improving yet.

My concern is about the greater economy. It’s great to see sales coming back, but here’s the rub: Say prices continue to fall, and the economy loses more jobs. That means more people are getting cash-strapped on their mortgages. If they want to sell their homes, they may not be able to get enough to pay their existing loans. If they need to take cash out of their homes, the equity may not be there either. 

Everyone keeps asking me when we’re going to see a bottom in the housing market. My answer is simple: When prices stop falling.

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