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6 signs of a housing recovery

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Increased affordability
Part of the reason the housing bubble burst, at least in the most overheated markets, is that average home prices grew disproportionately faster than average salaries, pricing many first-time buyers out of the market.

That, in turn, reduced demand.

Many of those would-be buyers continue to wait on the sidelines, hoping for a bargain and watching for signs that the market has reached a bottom.

If housing in your area has become more affordable to the average buyer, you're likely to see property values rebound sooner. A few key reports can help you determine whether the dream of homeownership is becoming more attainable for local buyers.

In its "The State of the Nation's Housing 2007" report, the Joint Center for Housing Studies provides a table of house price-to-income ratios for 150 of the largest metropolitan markets dating back to 1996. Although the most recent figures are for 2006, the table should give you an idea of housing affordability trends in nearby cities.

The National Association of Realtors also maintains a housing affordability index that measures the ability of a family earning the median income to purchase a median-priced home.

Over the last few years, housing costs ranged nationally between 20 percent and 24 percent of income. Anything less than 25 percent is ideal, says Molony.

Sign of recovery No. 3:
Local housing costs average less than 25 percent of incomes.

As of September, NAR reports homeowners in the West continued to spend the greatest percentage of their income on housing (31.5 percent), followed by those in the Northeast who spend 24.5 percent. Homeowners in the South spend just under 20 percent on housing costs, while those in the Midwest spend the least, at just under 17 percent.

End of price reductions, concessions
It's clear buyers still have the upper hand when homeowners are forced to slash their listing price two or three times before selling a property. So, when you're talking with a real estate agent, ask how common price reductions have become in your neighborhood.

Real estate Web sites and newspaper ads also often make note of homes that have undergone a price reduction.

In a buyer's market, you can also expect to see lowball offers and a growing list of repair demands. Sellers are also more likely to accept contingent offers, where the purchase is dependent upon the buyer selling their existing home.

Sign of recovery No. 4:
Buyers stop reducing prices and are less willing to make concessions.

Another sign of a cold market: Sellers who advertise their intent to pay a buyer's closing costs.

If any of these trends begin to subside or even reverse, it may be a sign that your market is starting to heat up.

Next: "All real estate is local."
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