CNN Money's How (and when) to Spot a Housing Rebound

Though it's obvious that today's national housing downturn is one of the worst in half a century, the still-huge overhang of unsold homes (one of the key indicators of the market's prospects) shows that things could actually get worse, especially if the national economy slips into a recession. 

Real estate, however, is a local game. Individual regions could be in far better shape than the country as a whole, and median prices for existing single-family homes in a third of the country's metropolitan areas are actually higher than they were at this time in 2007, according to the National Association of Realtors.

During the housing boom, regions moved at different times. Places like Las Vegas and San Diego were among the first markets to take off, while Albuquerque and Portland, Ore. spiked later. As cities move independently during the boom, they're not all moving at the same speed during the current slump. That's why "it's more important than ever to examine what's happening in your city," says NAR president Richard Gaylord.

You may not, however, be able to precisely time the market, but by keeping track of a few key indicators, you can gain a general sense of when a turnaround will occur.

Pay attention to changes in your local job market. The more new jobs there are, the greater the demand for homes. Conversely, an uptick in unemployment and a weak labor market will mean that a recovery could still be far away. This, however, is just one indicator. Here are CNN Money's key questions to answer to determine how healthy your market is (and if it's close to recuperating):

Is the housing stock shrinking? 

The problem with most markets today is that there is a surplus of homes and not enough buyers. The best signposts to look for are a significant reduction in the supply of homes and a jump in sales, according to Mike Larson, a real estate analyst with Weiss Research.

Getting local data on inventory and sales isn't that simple; your local realtors association or a competent agent should be able to supply you with basic supply and sales figures, though the type of data will vary. Be sure to ask for as much information as you can, such as monthly inventory of homes in your area, average days on the market and total number of homes available for purchase. 

The typical inventory in a stable market is about six months' worth of homes with each home tending to stay on the market for roughly 90 days, says David Stiff, chief economist at Fiserv Lending Solutions.

An ideal market is close to these levels. San Francisco, for example, is slightly above this level with 6.3 months of homes for sale. Because of the local nature of housing, it's more important to see whether your region's housing stock is returning to its pre-housing bubble levels.

Sales, because housing is seasonal, require you to pay attention to a year-over-year growth in home sales as opposed to monthly changes, says Joel Naroff, chief economist for Commerce Bank.  See how many homes sold this August vs. last August but do not compare them to July.

Are home prices falling at a slower pace?

The rate of home-price declines starting to slow is a telltale sign of your local market starting to heal. You can find quarterly price date for about 150 major metropolitan areas at the National Association of Realtors website. For monthly figures, ask a local real estate association or your agent. Some agents can even provide statistics for homes in a particular price range or zip code.

Be patient when starting to track these figures. "You need at least three months of smaller price drops to be confident the market is really shifting, since housing numbers are really volatile and are affected a lot by the weather," says Patrick Newport, an economist with Global Insight, an economic forecasting firm.

If you're a buyer who's looking for a great deal, wait at least that long. If you're trying to sell, be even more patient. Even if prices stabilize, they could stay low for a while. In fact, it is likely that it will be months before prices rise again.

Is it cheaper to rent than own? 

An easy way to calculate this is to take the price of the type of home you want in your market, and call around or ask your broker to see how much it would cost to annually rent a similar  property in the same region. If you can purchase a home for $540,000 but can rent a similar one for $36,000 a year, your "price-to rent ratio" would be 15. 

For the most part, buying starts to look attractive when the P/R ratio is at 15 or lower, says Newport (the current national average is 12.5).  As your market's P/R ratio falls, more sellers are likely to come into the market, so demand could pick up and help stabilize home prices. 

A ratio of 15, however, is just a ball park. For a more sophisticated analysis, see how your market's current P/R stacks up to its pre-housing-boom levels. Ask local realtors and rental agencies for an estimate of prices and rents back at the start of this decade.

Are houses more affordable? 

If a significant percentage of households in a market can afford to buy homes there, sales won't rise. Check your region's affordability level to see if this applies to your area. 

The National Association of Home Builders calculates this figure (called its housing opportunity index) for about 220 metropolitan areas. The index considers a home "affordable" if no more than 28% of median family income in that area is required to pay for it. 

The national average (53.8) means that slightly more than half of the homes purchased recently were deemed "affordable." But it's not fair to simply compare local data with national averages. If you really want to know if conditions are improving, check if your region's affordability index reading is climbing. In St. Louis, affordability has risen from 77% a year ago to 80% today. 

There's one more indicator you should consider: foreclosures. The rate of foreclosures in each region is definitely a sign of the health of a market. This is, however, a lagging indicator. It can sometimes take six months or more from when a homeowner defaults to foreclosure.

Also, remember that a primary reason defaults are occurring today is that home prices are falling. With no equity, owners can't refinance out of unaffordable mortgages. In order to refinance, many homeowners would have to see prices not only stabilize but also rise. 

So, "by the time foreclosures peak and start falling, the market will have already bottomed out and turned around," says Larson, meaning that buyers will have missed the "sweet spot."