The number of homes under contract to sell increased in May.

It’s the fourth straight month in which sales volume increased, corroborating the growing notion that housing is on the mend in most U.S. markets.

Consider these other housing-related stories from the past month:

• Existing Home Sales are rising
• New home supplies are falling
• The Case-Shiller Index is turning positive-like

Put it all together and it looks like the housing market is about to reach its bottom (if it hasn’t already).

But just because homes are going under contract to sell doesn’t mean that they actually will sell.  A “deal” can fall apart for all sorts of reasons including failed home inspections, buyer-seller disputes, and mortgage-related problems.

In general, though, as the number of pending contracts increase, we find that Existing Home Sales rise, too, some 45-60 days into the future.  And so long as buyers’ demand for homes remains strong, we would expect that home prices edge higher.

It’s too soon to say that housing has turned the corner for certain, but there’s an awful lot of data lately that suggests that it has.

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Tuesday — for the first time in a long while — members of the press met the monthly Case-Shiller Index data with enthusiasm.  And why shouldn’t they?  19 of the 20 measured markets showed a slowing pace of home price decline in April.

Here are some of the headlines about the story:

• Case-Shiller Home Prices Decline Only 18% (Business Week)
• Case-Shiller Less Bad (Seeking Alpha)
• Home Prices In 20 Cities Drop Less Than Expected (Bloomberg)

Now, the headlines feel negative, but they’re actually highlighting some key strengths in April’s figures.  For example, nearly half of the Case-Shiller markets posted gains in April and all but one showed month-over-month improvement.

It’s a step in the right direction but doesn’t mean that housing has turned around for good.

We have to be careful about how we interpret the Case-Shiller Index because it’s an imperfect housing gauge.  The most obvious Case-Shiller flaw is that it only measures home values in 20 cities nationwide and they’re not even the 20 biggest cities.

Houston, Philadelphia, San Antonio and San Jose are excluded from the report and each ranks among the country’s 10 most populous areas.

That said, the report is still important because the Case-Shiller Index identifies broader housing trends and that helps to shape economic policy.

Not only versus last month but also versus last year, the pace at which home values are falling appears to be getting slower.  This is the third straight month Case-Shiller has reported as such.

Now, three months makes a trend, but the data has to stay strong through the summer months to mark a bona fide turnaround.  If the Case-Shiller Index shows strength for May and June, it could be the signal for which the markets have been waiting.

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At the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009.

• Some said housing would rise
• Some said housing would fall
• Some said mortgage rates would rise
• Some said mortgage rates would fall

And nobody predicted just how big the government’s stimulus package would be.

Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future.  Economists can make educated guesses about the future, but they’re guesses nonetheless.

It’s like watching the Weather Channel.  A meteorologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.

So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood.  These are not the types of predictions we get from the pundits.

There’s another 6 months until 2010 and there’s no reason to expect the current trends to change.

The world is unpredictable and so is the U.S. economy.  Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.

After all, the weatherman’s been wrong before.

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If you only saw the headlines this week, you may have missed another positive sign in the housing market.According to the Census Bureau, the supply of newly-built homes for sale fell to 10.2 months in May, its lowest level in 10 months.

Unfortunately, the New Homes Sales story wasn’t positioned as a positively by the press.  Instead, the most common headline on the data read “New Home Sales Dip 0.6%” with many journalists referring to the figures as “weak” or “disappointing”.

Only, that’s not completely true.

See, one of the nice elements of the monthly New Home Sales report is its footnote section in which the Census Bureau talks about statistical Margin of Error and that section tells us that if the Margin of Error is larger than the measurement itself, the report is useless.

And that’s exactly what happened in May.

New Home Sales were measured to have fallen by 0.6 percent but that data point was dwarfed by its 17.8 percent Margin of Error,  The “headline data”, in other words, was just a guess.

The press reported it anyway.

Nonetheless, as it relates to the economy, falling home inventories are a positive.  Having 10-plus months of homes on the market is still high historically, but a definite improvement over what we saw earlier this year.

So long as low mortgage rates and aggressive pricing persists from builders, we expect even less supply in the months ahead.

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The housing market got another dose of good news yesterday.
According to the National Association of REALTORS, the number of homes sold in May increased for the third straight month and the national housing supply fell by 5 months.

Furthermore, first-time home buyers are accounting for nearly one-third of the market activity.

But, before we declare a bottom in housing, it’s important that we remember the First Rule of Real Estate:

All Real Estate Is Local

National housing statistics like Existing Home Sales are painted with a very broad brush. They lump disparate locales such as San Francisco and Seattle into one sample set and don’t account for regional differences, let alone neighborhood ones.

Furthermore, getting down to a city-by-city, or even street-by-street basis, we can always find homes that are selling quickly and home that are languishing.  Real estate is highly local and subject to countless influences.

That said, the national data isn’t completely useless.  From the patterns, we can infer that low mortgage rates, ample home supply and available tax credits are providing a quantifiable boost to the broader real estate market.

And based on recent pending sales data, we can expect June and July’s Existing Home Sales figures to be similarly strong to May.

Therefore, if you’re in the market for a new home right now — or plan to be soon — be conscious of home inventory levels in your target neighborhoods.  Fewer homes on the market usually means less ability for buyers to negotiate and that leads to higher sales prices.

Plus, the NAR is reporting buyer activity up 10 percent from last year.

The housing market may not be fully recovered in every housing market just yet, but in studying the data, a lot of the pieces appear to be falling into place.

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Moving to a new metropolitan area requires adjustments.  There’s new streets to learn, new weather patterns to get used to, and new social cultures to assimilate.

There’s also new costs.

Just like home values vary by area, so does the Cost of Living.  To visit a doctor in Chicago, as an example, costs a person more than to visit a similar-type doctor in Des Moines.

Cost of Living adjustments can’t be ignored between two cities because it changes a household’s budget.

And while it’s a challenge to know exactly how far your dollar can stretch in a new town, Bankrate.com hosts a helpful Cost of Living Comparison Calculator to make the math a little easier.  With categories such as dry cleaning, groceries and beauty salon, the calculator goes extra deep into the typical costs to a household, and can help families to make more realistic budgets.

The calculator also shows the equivalent household income between any two metropolitan areas.

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After being range-bound since the start of the year Housing Starts unexpectedly jumped in May, surprising analysts and Wall Street.

It’s the latest in a string of housing-related data that suggests a real estate recovery is already underway.

Housing Starts is an important statistic for a number of reasons, but to homebuyers and home sellers, its immediate impact is on home inventory.

Home values are based on supply and demand.  When the demand for homes exceeds the supply, values tend to rise. Conversely, when supply exceeds demand, values tend to fall.

When Housing Starts increase as they did in May, therefore, unless there’s a corresponding increase in demand, home prices get pressured downward.

Lately, that off-setting demand appears to be present.

With home affordability near record-high levels, mortgage rates well below historical averages, and the first-time homebuyer tax credit in place, Existing Home Sales are up 16 percent on a “raw numbers” basis versus last month and home supplies are lower versus last year.

Rising Housing Starts can a double-edged sword to a recovering economy.  It’s a strength signal that builders are more optimistic right now, but too much optimism can lead to a glut of unsold homes that pushes housing back to the brink.

So long as demand outpaces supply, however, inventories should reduce and values should move higher.

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When finances are tight, homeowners are often forced to choose between making home repairs right away, and putting them off until finances improve.

Some repairs, though, become more expensive if not tackled on the double.  The hard part is knowing which fixes those are.

In this 5-minute piece from The Today Show on NBC, a Consumer Reports editor talks about important, must-make-them-now home repairs, including:

• Re-sloping soil for runaway rainwater
• Replacing curled and cracked roofing shingles
• Sealing damaged vinyl siding
• Replacing soft wood
• Treating mold issues — both major and minor

Maintaining a home preserves its long-term integrity and can help support resale value, too.  Not every minor fix must made today, but left unchecked, some minor fixes can turn into major ones — and that’s when costs can pile up.

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The Pareto Principle is a statistical concept most commonly known as the 80/20 Rule.It says 80 percent of the effects come from 20 of the causes.

Apparently, the 80/20 Rule applies to foreclosures, too — at least according to data compiled by foreclosure-tracking firm RealtyTrac.

Based on data from May, 11 states accounted for 80% of the country’s foreclosure activity. The remaining 20% was spread across the 39 others.

That’s 80/20 almost to the tee.

The disparity goes deeper that that, though.  The top three states in RealtyTrac’s list — California, Florida, Nevada — were home to half of May’s foreclosure-related actions.

Clearly, foreclosures are concentrated in certain geographies.

But, no matter in which state you live, foreclosures still impact you.  This is because mortgage lenders are often national companies, lending in all 50 states.

When home loans go bad — in any state – lenders respond by increasing downpayment requirements and by adding new borrowing hurdles.  If you’ve applied for a mortgage in the last 18 months, you’ve experienced this phenomenon personally.

On the other side, if you’re a home buyer in a foreclosure-heavy state, you’re finding terrific value versus several years ago.  It’s one reason why Existing Home Sales in the West Region are up by 19 percent from last year, for example.

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Tighter mortgage guidelines since late-2008 are forcing home buyers to make bigger downpayments.  Anecdotally, the change has led to a surge in buyers taking gifts of cash from family members.If you’re among those accepting a cash gift from family, it’s important to know that you can’t just deposit the money in your bank account.

There is a proper way to accept a cash gift and it requires 3 distinct steps:

1. Complete and sign an acceptable gift letter
2. Document the gifter’s withdrawal of funds with teller receipts
3. Document the giftee’s deposit of funds with teller receipts

See, mortgage lenders pay close attention to gifts-for-downpayments.  For one, lenders have to make sure that downpayment cash is “clean” (i.e. not laundered).  And, secondly, they want the gift to really be a gift and not a loan-in-disguise.

This is why lenders will often require that a signed, dated letter accompany the home loan application.

As an example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift — not a loan — and there is no expectation of repayment.

Signed,
[Signature of gifter]

To further appease lenders, gift recipients should make sure that gift funds are not commingled at the time of deposit.  If the gift is for $12,000, for example, the bank’s deposit slip should indicate that a $12,000 deposit was made — nothing more, nothing less.

Don’t add a random $50 check to the deposit, in other words.  If you have a separate deposit to make, make it as a subsequent transaction with its own receipt.

It’s also worth noting that gifting funds between family members can create both legal and tax liabilities.  If you’re unsure about how donating or receiving a gift may impact you, call or email us directly.  If we can’t help you with your questions, we can refer you to somebody that can.

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