Have We Reached the Bottom of the Housing Market? | The Snyder Group

Have We Reached the Bottom of the Housing Market?

For the first time since 2007, according to online real estate site Zillow, home prices rose annually in the second quarter of 2012. As a result, the firm announced that home prices had bottomed.

But has it?

Though the increase was only 0.2 percent, Zillow wasn’t afraid to make the announcement. However, other firms, analysts, and real estate experts aren’t so sure.

In Zillow’s survey, almost 33 percent of the nearly 170 markets it researched experienced annual price gains from last year; in fact, home values have risen for the fourth straight month and many forecasts for the remainder of the year are positive. And the fact that housing is showing these signs of recovery even as job growth stagnates indicates to many that the recovery is being fueled under its own auspices.

The report also indicated a 2.1 percent rise in values gain from quarter to quarter, the largest rate of increase since 2005.

However, other analysts have urged caution regarding Zillow’s analyses. Zillow compares the prices of home sold in the same neighborhood, and their results show that the largest price gains are in markets that also experienced the largest price drops during the last housing crash. For example, in Phoenix, one of the hardest hit during the crisis, showed a 12 percent increase in annual gains.

This, other analysts have pointed out, is an example of how prices overall are being pushed up, but only for the short term. The same is happening throughout the rest of Arizona, as well as in neighboring Nevada and California, both of which were also among the hardest-hit during the crisis. In other, less hard-hit parts of the country, though, the situation isn’t the same – Philadelphia, Chicago, and St. Louis, for example, have all experienced annual price drops of at least 3.5 percent

Analysts at another real estate data company, Radar Logic, have also seen price increases, but their optimism about housing is much more tempered. They believe that the mild winter weather across much of the country increased demand in the short term, which inevitably will lead to a contraction of prices during the second half of the year.

Another issue, they feel, could arise on the supply side, which could reduce prices, too. Because higher prices now will lure banks into selling more of their foreclosed homes, there will a flood of homes entering the market. On the demand side, rising prices might result in the less investment in real estate.

This is important because of the high number of investors active in the market today. As much as 33 percent of all home sales are being bought by investors. The result is shaky confidence in the staying power of these price gains. Also, first-time home buyers barely make up 33 percent of the market – when they should comprise 40 percent of it. Furthermore, millions of potential buyers thinking of moving up to a larger, more expensive homes cannot because they are trapped in the underwater or near-underwater mortgages. This results in a stagnancy in buying and selling, the result of which a leveling off of prices – and perhaps a drop in them.

To put it in a nutshell, the jury is still out on whether the housing market has hit bottom yet.

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