Optimists Are Ignoring Two Key Points About The US Housing Recovery

Business Insider

Everyone has been celebrating the recent increase in U.S. home prices. But in the latest RPX monthly housing market report, Quinn Eddins, Director of Research at RadarLogic writes that it is too early to call a housing recovery.

Looking at the 25-MSA RPX composite home prices that are up 9.2 percent as of November 21, Eddins writes that the "public discussion has missed a critical point", that the gain reflects the weakness of home prices in 2011, more than the strength in 2012. 

"In each year since the end of the housing boom, the RPX Composite has weakened during the second half of the year. In 2011, it weakened more than usual.

"So when we talk about a 9.2 percent year-over-year gain in the RPX Composite, it is a gain off an unusually low base. It does not simply reflect strength in housing prices during the 2012, but also extreme weakness in housing prices during the second half of 2011."

 

What's more the rise in home prices has been driven by a shift in the composition of sales driven by institutional investors trying to build up rental property portfolios. In a report released earlier this month Eddins wrote:

"Investors appear to be purchasing properties mostly from two sources: financial institutions selling REO and investors trading distressed properties purchased earlier in the housing crisis. They have not purchased significant volumes of homes from builders and households.

"Thus, it is hard to see a direct connection between the current increase in institutional demand and future gains in household demand, especially at a time when traditional buyers are faced with high down payment requirements and tight standards for mortgages."

SEE ALSO: The 10 American Housing Markets That Made Tremendous Turnarounds In 2012 >

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