Mass layoffs by major employers continue to generate scary headlines, but last week housing got a long-awaited dose of good news.

After months of declining sales of existing homes -- and dire predictions by economists of more drops to come -- sales in December jumped by a surprising six point five percent.

Equally important, inventory levels of unsold housing plummeted by twelve percent, and have fallen below six months in several large metropolitan markets.

Sales in the western states increased nearly fourteen percent last month and were thirty-two percent higher than the year before. In the south, sales were up by seven percent, and in the midwest by four percent. Only the northeast states saw a decline in December a little over one percent.

Dr. Lawrence Yun, chief economist for the National Association of Realtors, attributed much of the boost in sales to sharply lower prices in many markets, combined with near record low mortgage rates.

"It appears that buyers are taking advantage of lower prices," he said, adding that the median existing home price hit one hundred seventy five thousand in December which was fifteen percent below year earlier levels.

Yun said key factors in the median national sales price drop were the high percentages of distressed sales in a number of markets. Nationwide, foreclosures and short sales accounted for about forty-five percent of December's transactions, but in some parts of California and Florida the percentage was much higher.

A Wall Street Journal quarterly survey of twenty-eight of the largest metropolitan real estate markets also turned up positive news: Unsold inventories in Washington, D.C., Houston, Denver, Boston and Dallas fell below six months, which is the level at which economists describe supply and demand as relatively balanced.

Besides the good news on the housing front last week, mortgage rates continued to hover in the five percent range -- five point two percent for thirty year loans on average, according to the Mortgage Bankers Association. Low interest rates also contributed to a slight upward tick in the Leading Economic Indicators Index from the Conference Board. Four of the ten key indicators that make up the index -- which forecasts the direction of the overall economy in the months ahead - were positive.

So is all this a prelude to an economic bottoming out and turnaround? It could be, but it's too early to say for sure. What we can conclude though, is that when we begin to see positive numbers like these for two and three months in a row, we'll know we are past the bottom and we're on a recovery track.

Published: February 3, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.