At the Bottom, but Maybe Not for Long

The Wall Street Journal today says the housing market nationally is bottoming out, the essential first step before it can start rising again. But the Journal is a little pessimistic that the upward bounce is coming any time soon. It says the market could drag along the bottom for a while, thanks in part to the uncertainty over how banks’ “shadow inventory” will be handled over the next few years and the continuing trouble borrowers are facing getting financing.

“There are more signs than there were a year ago that housing isn’t getting any worse,” the paper says, “and that it may slowly be getting better.”

But how slowly? The Journal says prices nationally are still falling. It cites February data from CoreLogic that prices fell 2 percent from a year earlier. Recent Case-Shiller data also show prices continuing to fall. NAR data, which draws directly from MLS data, differs from these two data sets. In February it showed prices with a slight, 0.3 percent gain, and in March with a more substantial 2.5 percent gain. These figures take into account distressed sales, which comprise about a third of all existing-home sales today and have a dampening effect on prices, so price gains would be higher if these sales were taken out of the data.

Time will tell which data set is more accurate. Several months will need to go by before we can look back and see what’s actually happening today with prices, but in any case, NAR Chief Economist Lawrence Yun is optimistic about what the market will look like later this year.

First, distressed homes are getting snapped up by bargain hunters, both investors and owner -occupants. That softens the impact that banks’ shadow inventory will have on markets in the months ahead as more properties are released. Second, inventory levels are down to six months, which historically has been the level at which prices stabilize.

To be sure, inventories have been down to six months only for a short amount of time, so it’s too soon to say there’s a trend here. But if inventories stay down at this level for several more months, the stage could be set for better news on prices.

One point made by the Journal that is certainly the case is the continuing trouble borrowers are having getting loans. As the paper says, banks are maintaining tight credit standards in part because of their concerns that Fannie Mae and other secondary market entities will make them buy back any loans that go bad. So, their standards are ratcheted up, and that’s causing even creditworthy borrowers headaches.

It’s safe to say that, until the difficulty of getting financing eases back to a more normal level, even today’s brightening picture can’t be taken for granted, and the Journal’s concerns about a prolonged stay at the bottom could prove true.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at

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  1. I, too, am a little pessimistic about a recovery. It is true, we are seeing lower inventory, less days on market, and multiple offers, and I agree we will “drag along the bottom” for sometime. However, I am not sure I foresee much if any major upward trends in the near future. In fact, I beleive we are on a slippery slope, meaning instead of recovery, we can slide further down and away from recovery.

    Why? Simply because we are not seeing much recovery on the economic front; It is costing more to live and, most important, unemployment numbers are still high. We all know “affordability” is directly related to job growth. Also, we know more forclosures will hit the market, most likley after the election, and short sales are on the rise.

  2. Our San Juan County, New Mexico market has been exceptionally busy for the last two months. We are seeing many of the REO and short-sale properties going under contract. It remains to be seen how many will track all the way through to closing, but so many of them are pending that my low end buyers are being forced to look at a higher price point. I am not convinced that this will last, but I am enjoying the busy days and the fun of showing and selling in the moment!

  3. Well I won’t be that pessimistic about the revival of housing market. The things have improved. The economy has shown signs o improvement. The unemployment rate that was increasing every month has took a break. And is slowly decreasing, so I think if things go in the same manner albeit slow then there might be revival of housing market.

  4. Spring 2012 certainly “feels better” than it has for the past 4 years or so. It’s almost like someone recovering from the flu. They feel better–and sound more normal–but there is a long way to go because the market is still weak. Some private funding of mortgages would really help the situation. The demand is there, but the loan process is still very restrictive.