Hard Up For Good News in the Real Estate Sector

Ask any economist and they will tell you that a typical real estate cycle lasts for seven years. The last one we had lasted for more than twice as long. Plus, as history has demonstrated in the past, it’s the real estate sector that has usually led the national economy back from the pit of despair (better known as recessions). And we just got past a BIG ONE!

So it should not really surprise anyone that the national media are clamoring for good news from the real estate industry, while market analysts and industry insiders are busy cranking out numbers trying to feed the media frenzy to support the notion that a recovery in the housing market is here at last.

Zillow was the latest one to do it, along with the Federal Housing Finance Administration (FHFA) which oversees Fannie Mae and Freddie Mac. According to reports in the Los Angeles Times, CNBC and the Huffington Post yesterday, Zillow believes home prices have now bottomed out and are on a sustainable upswing as prices rose 2.1 percent between Q1 and Q2 2012, and are up 0.2 percent year-over-year, the first yearly gain in five years. Still, it’s hardly time to cash in on that underwater home distressed homeowners have been waiting to sell.

In her Realty Check blog post yesterday, CNBC’s Diana Olick gave a balanced report, noting that Radar Logic came out saying that calling for a bottom in home prices is “dangerously short-sighted.”

Olick goes on to note that the inventory of foreclosed homes has diminished substantially, with investors having to look at foreclosure alternatives, particularly short sales, as the way of finding the best deals in today’s market.

“Investors are driving much of the housing market today, anywhere from one third to one quarter of homes sales,” she explained. And that is the point RealtyTrac has been making for a long time and why a prognostication about a full blown recovery in housing is probably premature.

Home sales have been up mostly because investors have been coming in with all cash and buying up the best of the bargains on the market. Bidding wars among investors have thus pumped up the median and average sales prices as well. That, plus the fact that we are in the midst of the spring/summer home buying season, so it’s easy to see why this slight upturn in activity may be seen as the market recovery everyone’s been waiting for. But will it continue later this year?

The truth is, if and when another wave of foreclosures hits the market from the robo-signing scandal, and if lenders start cleaning out their backlog of shadow inventory, it is very hard to predict.  We may very well see home prices take another dive and sales slump before this is all behind us.

What do you think? Are projections of a market recovery in progress just wishful thinking or reality that can be backed up by substantial collaborating evidence?

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