Peter Coy

Existing home-sales rose 9.4 percent in September, reaching their highest level in almost two years and providing another indicator that the housing market remains on the road to recovery. Though home prices declined, economist Lawerence Yun predicts that the drop – a smaller dip than in previous months – reinforces hopes that home prices have begun to stabilize.

A shrinking supply of homes on the market (now a 7.8 month inventory) is also positive news. According to Realtor.org,

Total housing inventory at the end of September fell 7.5 percent to 3.63 million existing homes available for sale, which represents an 7.8-month supply at the current sales pace, down from an 9.3-month supply in August. Unsold inventory totals are 15.0 percent below a year ago.“The current housing supply is the lowest we’ve seen in two and a half years,” Yun said. “If we could continue to absorb inventory at this pace, home prices would return to normal, modest appreciation patterns next year.

Click below to watch Peter Coy, Economic Editor of BusinessWeek, discuss the latest numbers.