In a sign that the recession might be easing US homes sales (which lies at the root of the current recession) rose 2.4 percent in May. This is the second month in a row and the third time in the last 4 months to see a rise in home sales. While its too soon to call an end to the US housing woes this is certainly beginning to look like a trend. If sales continue to move upwards we would mark January 2009 as the nadir of the housing downturn.

The rise in home sales was not evenly distributed across the US. In fact a large percentage of the rise this month occured in the Midwest which saw a rise of 9% increase in the last month. The Northeast saw a rise of 3.9 percent. The South held even and the West saw a drop of .9% percent.

While this is an improvement we are nowhere near where we were 3 or 4 years ago and in fact we are still seeing 3.6 less sales than what we saw a year ago. And we should remember that May 2008 was certainly a down market. So in summary we are still in the midst of a poor real estate market but we are beginning to see positive signs.

Year Month Seasonally Adjusted Sales (Annual) Sales (Non Adjusted) Inventory Months of Inventory
2008 May 4,950,000 483,000 4,482,000 10.9
2008 Jun 4,900,000 504,000 4,495,000 11.0
2008 Jul 4,990,000 504,000 4,575,000 11.0
2008 Aug 4,930,000 489,000 4,335,000 10.6
2008 Sept 5,100,000 438,000 4,272,000 10.1
2008 Oct 4,940,000 413,000 4,198,000 10.2
2008 Nov 4,540,000 322,000 4,163,000 11.0
2008 Dec 4,740,000 361,000 3,700,000 9.4
2009 Jan 4,490,000 257,000 3,611,000 9.7
2009 Feb 4,710,000 280,000 3,798,000 9.7
2009 Mar 4,550,000 357,000 3,648,000 9.6
2009 Apr 4,660,000 413,000 3,937,000 10.1
2009 May 4,770,000 451,000 3,798,000 9.6
vs. last month: 2.4% 9.2% -3.5% -5.0%
vs. last year: -3.6% -6.6% -15.3% -11.9%

This month saw the number of single family homes on the market drop by 3.5% This is significant because usually inventory levels rise in the summer. Unlike the home sales numbers the inventory levels are improved from what we saw this time last year. May 2009 saw 3,798,000 homes on the market compared to 4,482,000 in May 2008 for a drop of 15.3 percent. Typically when a market starts to improve we will see a drop in inventory before we see a rise in sales which is what we are currently seeing.

So after painting a somewhat rosey picture for the US real estate market is there anything that could knock us off course? Yes. Much of the recent rise in home sales can be attributed to extremely low mortgage rates. While mortgage rates have rise in the last two months they still remain near historic lows. If mortgage rates start to rise it will without a doubt have a negative impact on sales. The effects of a rise of 1 to 1.5 points could be overcome and the real estate market could continue to improve. But some have predicted that the US is . This is basically caused by the fact that the US is now borrowing 50 cents for every dollar it spends. The effects of hyperinflation on real estate could be extremely negative. If mortgage rates were to rise above 10 percent its hard to see how the US or for that matter the world real estate market could continue to improve. It will at the least lead to a flood of foreclosures as people with adjustable rate mortgages see their rates rise from 6% to 11% and consequently their mortgage payments almost double. This is why the Obama administration has said they are working to stop hyperinflation before it happens. The question remains whether they can be successful.

So for now it looks like the housing market is seeing a light at the end of the tunnel. It remains to be determined whether the train will escape the tunnel before it collapses.

Ki works as a realtor in Austin. His site has information on Austin Texas Real Estate and Round Rock Texas real estate along with the neighborhood of Lost Creek Austin