As people who actually follow housing predicted, house prices have started increasing in most of the nation. The political ideologues and serial correlation blowhards that missed the housing bust are still in denial about the housing bottom.
Does that mean that everything is now fine in housing? We haven't built housing for the past 5 years, and we do have tepid job growth and housing formation. On the other hand, our economic recovery is precarious, European and Chinese problems will hurt. And there are still a lot of delinquent mortgages awaiting foreclosure. Man analysts are banging their heads trying to estimate housing equilibrium when the data simply isn't precise enough to figure it out. Sometimes you have to look for clues.
In many recovering markets the REO sales of late have fallen, but can we count on that to continue with so many delinquent loans in the pipeline? After all, the future of distressed sales is hard to predict. It could surge up, or shift more to short sales, or shift more to REO sales. Which is why I like to look at the change in the number of home sales year-over-year, by market. That largely removes the distressed sales affect because it relies so heavily on demand rather than supply. In many markets the number of homes sales has been steadily growing. But in some of the hardest hit markets the price is rising a bit and the inventory has fallen a bit, but the sales volume hasn't recovered. I wouldn't give an all clear to those markets yet, but they are definitely in the minority.
I expect that the supply of distressed houses will end faster than many experts predict (though we are still looking at years). The vicious cycle will tend virtuous in several ways:
- Early in the housing bust the delinquencies were new, so that timelines could only drag out; conversely the delinquent distribution is now so old that they are more likely to be resolved sooner than later.
- County legal systems have been choking on foreclosure volumes, but as that volume drops their ability to speed up processing will improve.
- Marginal borrowers will tend to hold onto their homes if they see home prices and equity recovering.