Current home prices and demand do not point to a full recovery

(TheNicheReport) -- Median home prices in the United States have enjoyed a steady increase for all of 2012, and in some regional housing markets investors have engaged in bidding wars over some listings in the last few months. The rising prices are certainly welcome news, but many real estate observers and analysts are warning against the conflation of a housing bottom with a market recovery.

The main cause of the 2012 run-up in home prices cannot be attributed to normal demand. Real estate investors are very certainly hungry for deals found at the bottom of the barrel, and these are the type of purchase transactions that have been predominant in certain regional markets like Phoenix and South Florida. A more pressing factor in rising home prices can be traced to the waning number of listings.

Existing Home Inventories Take a Dip

The number of previously occupied residential listings is currently the lowest on record since 2004. The number of newly constructed homes is also pretty low, but this is hardly a case of insufficient supply in the face of high demand. The current real estate market conditions are anything but normal.

On one hand, too many investors are interested in the rock-bottom deals provided by Real Estate Owned (REO) portfolios and foreclosed properties. Banks started warming up to short sales in early 2012, and they are now beginning to realize that they can realize greater profits from their distressed properties. This realization has had a bit of a cooling effect on the housing market. 

On the other hand, many investors have moved away from REO and distressed properties and are now looking at the low end of the price spectrum. Home sellers are now motivated to hold off for better opportunities, and investors are willing to skip over them for the time being. This low-inventory situation is not really motivating home builders since there are many foreclosures still pending. 

Not Interested or Not Able to Sell

First-time homebuyers and real estate investors seem to be the only participants in today’s housing market, but this is not the way a normal market operates. The American housing market has traditionally depended on families who wish to upgrade their living situation, to move to a bigger house or a better neighborhood with improved amenities. That vital market element is currently missing as many homeowners have been left underwater on their mortgages and unable to sell their properties.

Other homeowners are simply not motivated to sell or to move. The current household mobility is concentrated on the busy rental markets, which coincidentally are the same markets that are performing better than the rest. Until a widespread economic recovery is not experienced in the U.S., the housing market will continue producing artificial statistics.