Editor’s note: This is the second of a two-part series.

On Sept. 21, Leslie Appleton-Young, vice president and chief economist for the California Association of Realtors, spoke to a packed house about her latest economic forecast.

There’s no shortage of bad news in Appleton-Young’s forecast; however, there are some definite rays of sunshine that indicate the dreadful market that California and the rest of the country have been experiencing may be on the upswing.

1. Slogging forward
Appleton-Young repeatedly stressed the fact that the worst is over. The number of sales in California this year will probably be between 490,000 and 500,000. The issue is the mix of sales. Forty percent are distressed (20 percent bank-owned, or REO, and 20 percent short sales).

Two main drivers of these numbers are insecurity about the state’s job market as well as the unemployment figures, which are 3 percent higher (12.1 percent) than the national average. If you include those who have given up looking for a job, the real unemployment number in California is somewhere between 16 and 17 percent.

Before the jobs situation will improve, the gross domestic product (GDP) must increase to between 3 percent and 3.5 percent, which is almost 50 percent higher than it is now.

Furthermore, the number of homeowners who owe more than their house is worth in California is 30 percent, compared with 20 percent nationally. Exacerbating the matter even further, the high loan limits for FHA expired on Oct. 1. In California, this means that in some counties, borrowers who could obtain conforming loans up to $729,500 will now be limited to the Freddie and Fannie maximum conforming loan limits of $625,500.

2. Surprising numbers
Amid all the bad news, Appleton-Young did have some positive news to report. Although the changes are modest, there has been an increase in the percentage of equity sales compared to the share of distressed sales.

Foreclosure data company RealtyTrac reported that total foreclosure filings in August, while rising 7 percent compared to July 2011, were down 33 percent compared to August 2010.

The commercial market has seen a small decrease in vacancy factors, and the residential multifamily market is quite strong.

The worst may be behind us. The bottom in California appears to have occurred in 2007 (two years before the rest of the country).

In addition, the number of people selling their homes is back to a more traditional 14 percent as opposed 25 percent several years ago. The high rate was directly correlated with the increase in foreclosures and people losing their homes to foreclosure.

3. Good harbingers no one is noticing
In 2005, the market began showing signs of a downturn. Inventory started to increase but prices continued to climb in most areas well into 2007. If the buying public and the real estate industry had been paying attention to the growing inventory issue, they would have sooner realized the slowdown was coming.

Based upon Appleton-Young’s numbers, the same thing is happening now. The buying public remains clueless that the current numbers indicate that many places have already risen from the bottom.

The classic hallmarks of a seller’s market are decreasing inventory, fewer days on market, and increases in multiple offers. Fewer than six months of for-sale real estate inventory can be indicative of a seller’s market, with upward pressure on prices, while a supply above six months can indicate a buyer’s market, with downward pressure on prices.

While the $1 million-plus market is still experiencing a buyer’s market with 9.1 months of inventory, the rest of the market has an average of five months of inventory, which appears to place most of the state in the early stages of a seller’s market.

In fact, in the lower price ranges some areas are reporting only 2.3 months of supply. Where there is less than three months of inventory, you’re not only experiencing a seller’s market, you’re experiencing a very strong seller’s market.

The number of properties that receive multiple offers also supports this conclusion.

So what’s happening with the buyers? According to Scott Gibson of Gibson International in West Los Angeles, the buyers still believe there is plenty of inventory and they don’t believe interest rates are going up at any time soon. The result is that buyers lack urgency, which means fewer sales.

For those agents and consumers who are paying attention, the opportunity now is huge. The numbers being reported by Dave Stevens as well as Leslie Appleton-Young point to some improvement even in the midst of poor economic times.

If the economic conditions improve just a little bit, the worst market since the Great Depression may soon give way to an improved market.

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