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Miller: Housing Data Indicate a Market Recovering, Not a Full Recovery

We've been noting for months that the data flow from the housing market has been generally positive. Prices, as measured by the Case-Schiller indices, continue to fall or stagnate. But housing starts, and sales of existing and new homes have been rising persistently so far in 2012. On Thursday, the National Association of Realtors reported that existing home sales in June were up 4.5 percent from June 2011, while prices were up 7.9 percent. On Wednesday, the Census Bureau reported that new home starts in June were up 23.6 percent from June 2011. As has been the case since the second quarter of 2011, housing-related activity is a factor that adds to economic growth rather than one that detracts from it.

But as Jonathan Miller, president and CEO of appraisal firm Miller Samuel and author of the influential Matrix blog, puts it, that doesn't mean we can declare that the housing markets has recovered. Rather, it's recovering. "It's a process rather than a moment in time," he said.

For most homeowners, the most important housing-related metric is the price or value of their own home. And in many regions of the country, housing prices are continuing to fall. But Miller notes that prices may be the last component of the real estate economy to recover. "I always see transactions, rather than prices, as leading the market. The consumer is very price centric." Over the long term, Miller notes, prices will only rise in response to growing demand.

Making sense of the housing data has been complicated by the impact of foreclosures. In 2009 and 2010, banks indiscriminately dumped hundreds of thousands of properties they had repossessed onto the markets, which boosted supply and helped dampen prices. Then, after a series of scandals and investigations surrounding foreclosure practices (i.e. robo-signing), banks effectively declared a moratorium. "The robo-signing scandal in late 2010 effectively stopped services from dumping lots of distressed property on the market," Miller said. And that may have helped the market in two ways. First, it meant that fewer homes were dumped on the market, which pushed inventory down. But it also encouraged banks and lenders to do more short sales — i.e. to allow homes that were underwater to pass to new owners without the expense and time of foreclosure. "What emerged from the wreckage is that lenders learned that short sales were probably a more efficient mechanism," in dealing with problem mortgages, Miller said.

The rise in volume of both new and existing home sales is all the more impressive given the fact that credit remains tight. Even though interest rates are extremely low, banks are reluctant to lend to people with less than perfect credit. In fact, Miller argues that the low interest rates are hindering a recovery. "The spreads are so tight that banks are risk averse," Miller notes. "They want very high quality borrowers. So it's the same people benefitting from low rates over and over again."

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com