Summary
The determination of when a market bottoms is based upon the resurgence of a "free selling market" when sellers are not forced to sell and buyers are not buying because of subsidies, tax bonuses and all sorts of market stimulus. Reaching a decision that buyers are now in the market buying forced sales, short sales and foreclosures in record numbers does not signal a return to a free selling market until all of the short sales, foreclosures and government inducements to buy are not causing the sales. Much of this activity is fueled by speculators who will disappear from the buying market and resurface when the market prices rise then they become sellers which is a signal that a resurgent market is present but not the only signal.
Analysis
The factors that determine a bottoming of the market is when the rate of foreclosures and short sales return to a normal average percentage in the previous boom market and government incentives expire leaving a market without incentives and buyers and sellers are doing business without downside market pressures. Until the market clears of short sales and foreclosures appraisals on home will reflect low appraisals based upon forced sales and not a true market sale.
In every market downturn the foreclosure rate increases and when markets bottoms foreclosures return to a normal rate which is a second signal forecasting a resurgent market. Once the foreclosures and short sales diminish "free market sales" provide appraisers with true market evaluation prices and the market moves forward finding its own level. However, in areas of severe unemployment these markets will linger or not reach a "free market" stage due solely to the unemployment and exodus from the area by families seeking employment.
Although many real estate brokers define a market bottoming based upon sales of housing one must determine if the sales are "down market sales" and if so a "free market" is not present which means that the market has not bottomed.
Predictions that markets have bottomed are not to be determined by sales of distressed properties which are speculative in my opinion and will cease once to good properties are removed from the market leaving properties behind that will linger in the market until deeper short sales and demolition reduces the inventory to normal market conditions.
