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State of the Housing Market, May 2011

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It's Groundhog Day for real estate and it looks like the market is seeing its shadow again.

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Two years on, the story is sounding awfully familiar.

Late in the previous year, politics as usual led to a temporary foreclosure freeze lasting into early spring. In 2008 it was President Obama's moratorium on repossessions, last year it was the robo-signing scandal. Inventory gradually dried up as bank-owned properties were held back from the market.

In April 2009, as last month, it looked bleak.

With most markets still heavily reliant on distressed sales, transaction volume slowed and prices swooned. Widely quoted house price data painted a dismal picture of the housing market's future. Pundits made the TV rounds predicting more price declines. News stories appeared touting the end of home ownership in America. Investors pulled in their horns, models were readjusted downward for future depreciation.

But these are all contra-indicators. That is, when it's clear to everyone that home prices are falling, it's probably a pretty safe bet a turnaround is just around the corner.

The irony is that all this doom and gloom became groupthink after 12-18 months of a down-cycle that started last spring, after the home buyer tax credit expired. That the consensus has just now come around to confirming a downtrend that started over a year ago is indicative of how behind the curve most housing market analysis is.

In virtually every market we track, real time data shows April may have been yet another turnaround month in the Bay area in California. Starved for real inventory, that is, well-priced move-in ready homes, buyers are starting to offer more aggressively. Starved for projects, investors are upping their bids. And after seven straight months of job growth (meager as it is, it's better than job losses), Americans are slowly feeling a bit better about their economic future.

All this adds up to a confusing real estate market, in particular for younger buyers considering a transition from renting to owning. In some cases, renting still makes sense – buying a home remains a huge financial commitment, one which should only be undertaken after careful examination of your personal financial situation and plans for the future.

For others, recent rent increases have made owning a more economic proposition. Indeed, a recent study found that in more than three quarters of US markets, it's cheaper to own than rent. This isn't a ringing endorsement for buying per se, but it certainly warrants consideration that maybe the housing market bears are predicting the sky is falling after it has already fallen.

Editor's Note: This content was originally posted on Cirios Real Estate.

For much more on the US real estate landscape, take a look at Minyanville's Housing Market Report by Keith Jurow.
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