Some Complain: What Housing Recovery?

August 30, 2012 / Russell Legato, Residential Property Analyst

The words housing recovery indicate housing sales are increasing. There are still problematic areas that show a preponderance of distressed sales. While the shadow inventory remains large, this is likely to continue. It is possible that more foreign investors will take an interest in buying up these properties. It is a time for optimist because things were so much worse not too long ago.

Some Complain: What Housing Recovery?

Cities such as Detroit are still seeing elevated foreclosure rates. But, the data from Case-Shiller is promising. Just this morning, it was reported that prices on existing homes have gone up for the second month in a row. This hasn’t happened since 2010 in the summer season. Experts agree it is still a long road to full health, however the real estate industry is on the way up.

The Case-Sheller index Chairman David Blitzer stated that according to data through June of 2012, the real estate industry continues its recovery. Annual gains are up in the 10 and 20-city composites. It is the $10 million underwater mortgages and $246 billion worth of shadow inventory that give pause.

A sustained recovery seems imminent considering increases monthly and rates of change annually improving as they have been. Wells Fargo’s analysts speak of markets that bottomed in July. That is good news, especially since it followed improvements in new home sales as well as existing houses. The researchers at Barclays predict a 3 percent rise in home prices per annum this year.

Skeptics are doubtful that recovery will be rapid enough to grow the economy enough to avoid a new recession. According to them, a lot of the improvements in the real estate market are due to falling percentages in distressed housing transactions. Even the least optimistic among them are predicting a slight bump in the road to recovery, not a disastrous obstruction.

The word from John Campbell, Chair of Harvard’s economics dept. is that a typical foreclosure discount is approximately 27 percent. A decreasing rate of distressed sales reduces both the discount and the total number of discounted transactions. Since March of 2009, the decrease was significant. But, there are years ahead before a robust real estate industry will exist in the United States.

We will continue to read about homeowners with negative equity and the large number of foreclosures still for sale. There is a four-month supply of shadow inventory worth $246 billion. On the favorable side, the rate of sales considered distressed is going down.

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