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Why the housing market could soon get positive news

Lawrence Lewitinn
Lawrence Lewitinn

The housing market may be experiencing a slight bounce, according to data compiled by online real estate marketplace Auction.com.

The website expects an uptick in September existing-home sales reported by the National Association of Realtors (NAR). After three straight months of gains, the NAR’s numbers on existing-home sales stumbled in August.

“What we are seeing is a recovery in September from a really dismal August – but not a huge recovery,” said Auction.com’s executive vice president Rick Sharga.

If Sharga is correct, the NAR will show September existing-home sales somewhere in a range between 5.23 million and 5.57 million, with a midpoint at 5.4 million, on a seasonally adjusted annual basis.

Auction.com uses a model they call Real Estate Nowcast that combines Google (GOOGL) search traffic with its own transactional figures to predict the widely-followed NAR existing-home sales and average price numbers. [Google invested $50 million in Auction.com last year.] On a month-to-month basis, Auction.com’s sales forecasts have been hit-or-miss, with the NAR’s reported number within Auction.com’s range 8 out of the last 12 months.

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But on a year-over-year basis, Auction.com’s estimates tend to move with the NAR’s data. In August, Auction.com anticipated a 7% increase in existing-home transactions from its point estimate the year before. The NAR’s reported 5.31 million sales for that month, though 5% lower than July’s figures, were still 6% higher than the previous year’s number.

Existing-home sales are still well below the September 2005 peak of 7.26 million seasonally-adjusted annual sales though leaps and bounds above the July 2010 lows of 3.45 million.

The type of transactions may have also improved since the depths of the housing market collapse a few years ago. Auction.com is seeing a change in the market share of its foreclosure business.

“The percentage of distressed properties that is being sold as part of all existing-home sales is really returning to what we used to see before the foreclosure crisis,” said Sharga. “We peaked in the neighborhood of 40% of all sales being distressed properties. Now we’re down in the single digits – somewhere between 6% and 7%. That is good news for housing although it does limit some of the inventory available for buyers and inventory continues to be a big problem.”

Sharga doesn’t see a threat to the housing market’s tepid recovery in a potential interest rate hike from the Federal Reserve, expected later on this year or in early 2016.

“The real issue is more one of wage growth and labor force participation rates,” he said. “People need jobs. They need to be able to make enough money to afford a house. I don’t think a marginal rate increase in mortgage payments is going to have that big of an effect on the market.”

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