Pending homes sales are rising quickly as 2012 starts. Is this demand based on fundamentals? Is the market strengthening? When the bear rally of 2009 began, I consistently stated the rally would not hold. My reasoning was simple: the housing market was still inflated and the demand was artificial. For the housing market to put in a durable bottom, several factors must be in place:
- All market props must be removed. The demand must be natural.
- Prices must be at or below rental parity. Prices must be affordable for a bottom to be durable.
- Rents must be rising. Rental parity must not be declining for resale prices to be stable.
- Employment must be rising or stable. Rising unemployment hinders demand.
- Supply must not exceed demand.