The current list of Top 10 Turnaround Towns, developed using year-over-year comparative data from the fourth quarters of 2011 and 2010, begins with three of the nation’s top foreclosure markets that also achieved significant year-over-year median list price appreciation: Miami, FL, Phoenix, AZ, and Orlando, FL. They were followed by Fort Myers-Cape Coral, FL, which fell from third to fourth on the Realtor.com Top 10 Turnaround Town list in one quarter, and Sarasota-Bradenton, FL which rose from sixth to fifth. Ranking sixth was Boise City, ID, the only Rocky Mountain market to make the list. Four Florida markets rounded out the list including: Naples, Fort Lauderdale, Lakeland-Winter Haven and Punta Gorda.

The market rankings are based on year-over-year median price appreciation, reduction in year-over-year median age of inventory, and inventory reduction levels as observed on Realtor.com, as well as unemployment rates on a year-over-year basis. The Realtor.com Top 10 Turnaround Report is based on an algorithm that combines those four key measures with searches for properties on Realtor.com and the ratio of searches to listings in order to equalize markets by size. The resulting report reflects price changes that have taken place and gives weight to supply and demand dynamics that create continued progress towards growth and stability in future months.

The Realtor.com Top 10 Turnaround Towns, according to Fourth Quarter 2011 data are:

Miami, FL is leading the nation on the turnaround path. According to the Miami Association of Realtors, sales of existing single-family homes in the Miami Metropolitan Statistical Area (MSA) jumped 51 percent in the third quarter compared to a year ago.Miami has half as many properties in Realtor.com’s inventory of listings as it had a year ago, and the median age of inventory is down 30 percent from a year ago. Miami also continues to be a hot market for international buyers. In May, international clients purchased about 60 percent of the existing houses and condos and 90 percent of the newly built homes in Miami.[With inventory stabilized and median list prices regaining some of the 50 percent of value that was lost since 2006,] experts say one of the hardest hit foreclosure markets in the nation is on its way back.

Phoenix-Mesa AZ advanced two places on this Top 10 list between the third and fourth quarters of 2011. One of the areas hit hardest by foreclosures, Phoenix today still generates one foreclosure filing for every 317 housing units. Median list prices in Phoenix are up 15.38 percent on a year-over-year basis, but the market has to regain ground on what was lost in recent years. An uptick in demand driven by foreclosure bargains has contributed to a 27.47 year-over-year decline in the local median age of inventory. Unemployment in November was only 7.7 percent, below both state and national rates. With inventory in check, an improving local economy and growing demand, it’s only a matter of time before Phoenix returns to stability and lasting home value appreciation.

Orlando, FL secured its number three spot on the Realtor.com list of Top 10 Turnaround Towns as a result of progress made toward getting inventory back in balance with demand, suggesting the market may be stabilizing and turning a corner. The median age of inventory in Orlando on Realtor.com in the fourth quarter was down to 73 days, a 36 percent drop from a year ago and inventory was down 44 percent compared to a year ago. The Orlando MSA posted big declines in November foreclosure filings compared to the prior year and month. Lake, Orange, Osceola and Seminole counties posted 2,806 filings, or one in every 323 households. This is down 24 percent from November 2010, and nearly 36 percent down from the October 2011 filings. Fourth quarter 2011 year-over-year list prices on Realtor.com in Orlando rose 8.22 percent. Orlando leads the nation in the ratio of searches to listings on Realtor.com, a leading indicator that buyer demand may strengthen in the near future.

Fort Myers-Cape Coral, FL fell one rung to fourth place in the fourth quarter 2011 ranking on the list, but its recovery remains strong. Its median sale price has increased 20 percent over the past year, more than any other Florida market, though sales are down 13 percent.. The market led the nation in year-over-year median list price increases on Realtor.com (31.27%.) in the fourth quarter 2011, and ranked 14th in inventory declines that same quarter compared to a year ago. Only one in every 390 homes in the Fort Myers metro market received a foreclosure filing in December

Sarasota-Bradenton, FL ranks fifth in the nation on Realtor.com’s Top Turnaround Towns list for the fourth quarter 2011. Sales have been hopping in Sarasota and Bradenton this past fall, which is up 17 percent over last year. Median list prices were up 2 percent.] for the same period. This sales resurgence paralleled the drop in the available for sale inventory observed on Realtor.com, which just may place the remaining homes in range of a seller’s market. List prices on Realtor.com were up 10.78 percent in the fourth quarter 2011 compared to the fourth quarter 2010, and inventory is down 31 percent from a year ago.

Boise City, ID year-over-year for sale inventory observed by Realtor.com is down 40 percent, eighth best in the nation based on the year-over-year rate of decline. A key reason for the declining inventory is a reduction in foreclosures. A smaller inventory has helped drop the median age of inventory by 23.42 percent compared to a year ago. Smaller inventory is driving a median listing price increase of 13.77 percent, fifth best among Realtor.com’s 146 markets in the fourth quarter of 2011. Boise’s unemployment rate at 8.5 percent in November is better than the national rate.

Naples, FL is a newcomer to the Top 10 Turnaround Town list this quarter, powered by a 13.38 percent year-over-year increase in median list prices, seventh best in the nation overall, and a 35.94 percent reduction in for sale inventory. The median age of inventory in Naples is down 13.64 percent compared to a year ago. Demand in Naples, FL has been fueled by foreign buyers as the MSA attracts 6 percent of Florida’s international sales.While not everyone is bullish on Naples, sales are up and prices are moderating. The latest sales data from the Naples Board of Realtors confirms that the market is in the midst of change, but moving in the right direction. Sales of November single family homes are up 8 percent from November 2010 but sale prices are down 13 percent. Inventory is down 21 percent from a year ago.

Fort Lauderdale, FL has benefited from a shrinking inventory, which is down 41.63 percent year-over-year - sixth best (lowest) in the nation as observed by Realtor.com. Sales were up 22 percent in November and sale prices were up 18 percent year-over-year. List prices are up 7.84 percent over last year. However, like many other Florida markets, Fort Lauderdale, whose prices fell at least 46 percent from 2006 to 2010, still has a ways to go in part due to an unemployment problem affecting its housing market. But in November its unemployment rate fell to 9.4 percent.

Lakeland-Winter Haven, FL has observed a 9.09 percent increase in median list prices compared to a year ago. Its inventory has declined 35.28 percent since 2010 and its search-to-inventory ratio on Realtor.com, a measure of the number of buyers who are shopping for properties in the market, ranks fourth highest (best) in the nation in the fourth quarter 2011. As recently as a year ago, Lakeland-Winter Haven, FL was at the top of the national lists for foreclosure filings. But in recent months foreclosures in this MSA have been declining. In September, there were a total of only 86 distressed homes sold, compared to the 107 homes the previous month and 132 homes the previous year. Lakeland’s biggest hurdle on the road to recovery is its unemployment rate that dropped from 12 to 11 percent from the third to the fourth quarter, just a point over the state average.

Punta Gorda, FL returns to the Top 10 Turnaround Town list for the fourth quarter 2011 after it fell off the list the previous quarter. Like other Florida markets, it’s a market on the rebound, with both sale prices and sales up 11 percent year-over-year in November. Punta Gorda made it back to its 10^th place position on this list thanks to its29.25 percent year-over-year reduction in for sale inventory. But prices are just starting to turn around and must still make up for the 56.2 percent decline in home values observed since 2006. Currently Punta Gorda properties are selling at bargain prices, attracting both domestic and international buyers.

Clear Capital predicts U.S. home prices will drop 1.6 percent over the last three months of 2011, and 3.2 percent by the end of Q1 2012. This projected drop through Q1 2012 moves prices closer to Q1 2011 prices, the lowest since the downturn began.

“The September home price measures show continued slowing of the price gains we’ve seen this year, especially across the spring and summer months,” said Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. “The housing market has yet to demonstrate the fundamentals necessary to overcome a seasonal slowdown over the next six months, which drives our projected 3.2 percent drop in national home prices through the first quarter of 2012.

“The normally positive market forces of record low mortgage rates and near record lows in home prices are being offset by high unemployment rates and general consumer pessimism about the economic future,” said Villacorta. “Until we experience a more stable economic environment, I expect home prices to remain relatively flat or slightly down for the foreseeable future.”

Home prices gained 3.5 percent comparing the most current rolling quarter through September, to the previous one. Although prices are still up, the tide appears to be turning and these gains are expected to halt as early as next month. The resurgence in home price values over the last four months is best explained as the bounce back from the double dip observed in the first quarter of this year. As market prices move farther away from that low point, quarterly price changes will reflect the slowdown in price growth and yearly home price changes will show the stagnant environment that the market is in presently.

As the markets enter the fall season and brace for the traditionally slow winter season, our home price forecast models suggest an additional 1.6 percent decline in U.S. home prices over the last three months of 2011. If prices follow this expected trajectory, 2011 will have experienced a 1.0 percent decline for the calendar year and a 1.4 percent gain since the first dip in 2009. Barring any new shocks to the market, these modest price movements are anticipated to continue with little reason to expect big gains or losses through the next couple of years. Looking ahead to 2012, our pricing models project home prices will continue their modest slide with additional declines through the first quarter, said the Clear Capital forecast.

If the economy does fall back into its second recessionary period since 2006, there is strong potential for a triple-dip in the housing market. However, assuming prices remain on current trajectories, our models forecast U.S. home price changes of -3.2 percent over the next six months, and year-over-year price changes to eek out gains in the first quarter of 2012. In short, national prices may still see a positive yearly change since the rate of decline over the next six months is projected to be much slower than 7.7 percent decline national prices saw over the same period last year. This would be the first yearly gain reported since mid-2010 when buyers were capitalizing on the purchasing incentive of the home tax credit before it expired. Further, whereas the first “dip” in home prices occurred in the winter of 2009 and the “double dip” in winter of 2010, a dreaded “triple dip” is likely only to be flirted with, assuming there is not a major shock to the system in upcoming months, said Clear Capital.

Despite the strong rebound off winter’s double-dip in home prices, where prices hit their lowest point since the first quarter of 2009 when the downturn began, the overall housing market remains in a very tenuous state. Positive and negative forces have seemingly canceled each other out leaving prices virtually stagnant. Record low mortgage rates and a wide selection of affordable homes has yet to counteract the negative pull of distressed sales and stubbornly high unemployment. The net effect of these counter forces places the housing market in a suspended state with price movement limited to a standard seasonal ebb and flow.

In its latest price report, Clear Capital said that when rolling year-over-year numbers are considered, prices across the nation were down -3.8 percent from September 2010. While the nation is still struggling with year-over-year losses, one bit of good news is that the Midwest was able to recover from the -9.8 percent yearly decline posted last month with a decrease this month of -4.9 percent, putting it more in line with the rest of the nation.

REO saturation continues to improve across the country with only slightly more than one-quarter of homes (25.3 percent) selling as distressed. This rate is down 9.2 percentage points since May and down 15.6 percentage points since it peaked in Q1 2009. The current REO saturation rate is an encouraging sign that the summer buying season saw increased sales in the non-distressed segment, which helped support price growth.

When rolling year-over-year numbers are considered, prices across the nation were down -3.8 percent from September 2010. While the nation is still struggling with year-over-year losses, one bit of good news is that the Midwest was able to recover from the -9.8 percent yearly decline posted last month with a decrease this month of -4.9 percent, putting it more in line with the rest of the nation.

REO saturation continues to improve across the country with only slightly more than one-quarter of homes (25.3%) selling as distressed. This rate is down 9.2 percentage points since May and down 15.6 percentage points since it peaked in Q1 2009. The current REO saturation rate is an encouraging sign that the summer buying season saw increased sales in the non-distressed segment, which helped support price growth.

At the regional level, home prices in the West are sluggish with quarterly gains of a mere 0.3 percent over the period. Price movements in the Midwest and South are virtually unchanged from last month, when quarterly prices were up 7.3 percent and 3.5 percent, respectively. The quarterly 3.5 percent price gain experienced in the Northeast was a considerable cooling off from the 4.9 percent gains reported for the region last month.

Purchase application rates are good indicators of future sales, and the weekly uptick could indicate an improvement in demand that is still far below 2010 levels.  The Mortgage Bankers Association’s unadjusted purchase mortgage index increased 9.1 percent last week over the previous week and is now 34.7 percent below the year ago.

“The increase in purchase activity was led by a 17.2 percent increase in FHA applications, while conventional purchase applications also increased by 3.6 percent,” according to Jay Brinkmann, MBA’s chief economist. “This is the second straight weekly increase in purchase applications and the highest purchase index level since the expiration of the homebuyer tax credit program. One possible driver of last week’s big increase in FHA applications was a desire by borrowers to get applications in before new FHA requirements took effect Oct. 4, which included somewhat higher credit score and down payment requirements.”

In four-week moving averages, the seasonally adjusted market index is down 3 percent, the purchase index is up 2 percent and the refinance index is down 4.2 percent. Refinancings accounted for 78.9 percent of all mortgage applications last week, down from 80.7 percent the week earlier.

The MBA said interest rates for 30-year fixed and 15-year fixed mortgages fell once again last week to new record lows. The average rate for the 30-year fell to 4.25 percent from 4.38 percent and the 15-year decreased to 3.73 percent from 3.77 percent.

The precipitous drop in foreclosure sales is keeping foreclosure inventories high in many markets.  In fact, the number of mortgages that are 90 or more days delinquent, combined with the foreclosure inventory at the end of May outpaced foreclosure sales by 50:1.

The May Mortgage Monitor report released by Lender Processing Services, Inc. shows that mortgages that are 90 or more days delinquent combined with the foreclosure inventory totaled 4,084,557. With foreclosure sales at 78,676 at month end, the volume of serious delinquencies and foreclosures remains high.

The May data shows that the biggest drop in foreclosure sales has been seen in East Coast states, with a decline of 96 percent in DC, 80 percent in Maryland, 79 percent in New York, and 75 percent in New Jersey. Additionally, inventories of foreclosures in judicial states have increased twice as much as inventories in non-judicial states over the last year. The average time spent in foreclosure continues to extend, with more than 33 percent of borrowers in foreclosure not having made a payment in over two years.

New problem loans, defined as loans that were current six months ago and were 60 or more days delinquent at the end of May, are now less than half the peak levels seen in 2009, and are currently at 1.27 percent. Overall, when compared to historical norms, delinquencies are almost double and foreclosures are eight times higher.

Negative equity also remains a concern, with nearly 30 percent of current loans in a negative equity position. The equity impact on new seriously delinquent loans is significant, with loans significantly under-water defaulting up to 10 times as much as loans with equity.

As reported in LPS’ latest First Look release, other key results from LPS’ latest Mortgage Monitor report include:

Total U.S. loan delinquency rate: 7.96 percent

Month-over-month change in delinquency rate: -0.1% percent

Year-over-year change in delinquency rate: -18.3 percent

Total U.S foreclosure pre-sale inventory rate:  4.11 percent

Month-over-month change in foreclosure pre-sale inventory rate: -0.7

In the first quarter 2011 HomeGain National Home Values Survey, thirty-nine percent of agents and brokers and 30 percent of homeowners thought that home values would decrease over the next six months.

Thirty-eight percent of real estate agents and brokers and 43 percent of homeowners think that home values will remain the same in the coming six months.

Twelve percent of real estate professionals expect home values to increase in the next six months, down five percent from last quarter. Fifteen percent of homeowners expect home values to increase in the next six months, down nine percent from last quarter.

The HomeGain second quarter 2011 home values survey of more than 750 real estate agents and brokers and over 2,600 homeowners also found that homeowners and buyers continue to hold widely different views of home values.

According to surveyed agents and brokers, 77 percent of homeowners believe their homes are worth more than the recommended agent listing price but 67 percent of home buyers believe homes are overpriced.

“The current survey reflects that real estate professionals are resigned to accepting a market with declining prices being the norm rather than the exception. The past few years have been particularly harsh on the real estate industry and the majority of real estate professionals don’t expect much improvement in the coming six months.” said Louis Cammarosano, General Manager of HomeGain.

Rental markets are now tightening, with vacancy rates falling and rents climbing. With little new supply of multifamily units in the pipeline, rents could rise sharply as demand increases. Regardless, affordability is likely to deteriorate further over the next few years as persistently high unemployment limits renter income gains.

When job growth regains momentum, the number of renter households could climb quickly. Given the long lead times needed to develop new multifamily housing, a sharp increase in demand could quickly reduce vacancy rates and put upward pressure on rents. While this would be good news for owners and investors in rental housing, it would also fuel the intense affordability pressures, the study warned.

A variety of rental market indicators suggest that the worst repercussions from the recession may be over. While this is good news for most of us, especially property owners, the recovery may increase the rent pressures on households still struggling in an environment of sluggish job growth. The ongoing foreclosure crisis should continue to spur growth in the number of renter households as former owners switch to renting. Single-family home foreclosures will also add a steady flow of units to the rental market. The ability of renter households to occupy these homes will be an important factor in maintaining the stability of distressed neighborhoods hard hit by the foreclosure crisis.

Although there appears to be an excess supply of rental housing at present, this could change quickly as the economy recovers and household formation among younger adults returns to a more typical pace. An upsurge in demand could outstrip the available supply and push construction activity back up, the study said

One of the most important questions going forward is whether mortgage financing will be available to fuel rental property purchases and investments. Even before the financial crisis, Fannie Mae and Freddie Mac were an important source of financing for both multifamily and investor-owned single family properties. And during the crisis, the GSEs- along with FHA-accounted for the vast majority of new financing. As Congress takes up debate about what, if any, role the GSEs should play in the mortgage markets, policymakers must consider the vital importance they have as a source of capital for rental housing

That’s the latest prediction from the authoritative Moody’s Analytics and Fiserv, Inc, after an analysis of home price trends in 375 markets tracked by the Fiserv Case-Schiller Indexes.

Fiserv reports that home prices have fallen so far that they are at pre-bubble levels, creating affordable housing relative to income which, coupled with a slowly improving economy, will finally end price declines.

The slide in home prices has greatly improved home affordability.  Relative to household income, affordability is at or close to pre-bubble levels in nearly every metro area across the U.S. This dynamic, combined with growing economic strength, leads Fiserv and Moody’s Analytics to project that average U.S. home prices will stabilize in the third quarter of this year. By the end of 2012, home prices in even the hardest-hit housing markets will level out.

However, while Fiserv and Moody’s project the national U.S. home price average will stabilize in the third quarter of 2011, a 3 percent decline is expected in the first half of this year.

“The first step toward restoring confidence in housing markets is an improvement in consumer sentiment, which we expect will increase slowly through 2011 due to stronger job gains and a falling unemployment rate,” said David Stiff, chief economist, Fiserv. “As confidence rises, the decline in home sales that started in 2006 will, finally, come to an end.”

Even as balance returns to the housing market, Fiserv Case-Shiller data forecasts the pace of recovery will be uneven across U.S. metro areas.

“Many metro areas have vast inventories of vacant homes, a consequence of both over-building during the bubble and high rates of foreclosure. New data from the 2010 U.S. Census provide estimates of the depth of the overhang of vacant homes in some markets. Between the 2000 and 2010 Censuses, the overall U.S. housing vacancy rate increased by 2.4 percentage points. In metro areas with the largest price bubbles and crashes, housing vacancy rates have jumped by 3 to 7 percentage points.”

The most stressed U.S. housing markets are characterized by unemployment rates that exceed the national average and high housing vacancy rates. Examples include Detroit, Las Vegas and Orlando, where unemployment tops 10 percent and vacancy rates are above 15 percent. Stiff noted the feedback loop that continues to exert downward pressure on home prices in these markets:

“Economic growth in these markets was highly dependent on residential real estate from 2002 to 2006, with many new jobs tied directly or indirectly to booming housing markets. When the bubble popped, these markets suffered the largest job losses. Rapidly falling employment undercut housing demand, causing home price depreciation to accelerate, leading to more job losses in residential real estate.”

The markets that escaped this dynamic are better positioned for more robust recoveries. Examples include Dallas, Milwaukee, Houston, New York, Baltimore and Pittsburgh. Stiff noted that while many of these metro areas did experience double-digit home price declines, their economic growth was more balanced during the boom years, relying less on residential construction. Today, these markets benefit from relatively lower housing vacancy and unemployment rates.

Some markets are stabilizing now and on the macro level, the housing recovery is not far away, according to Sam Khater, senior economist at CoreLogic.  But the long awaited recovery won’t be much to get excited about, at least initially.

Negative equity is the culprit and it will continue to dampen demand and prices for months to come.  Like other sectors of the economy, housing has excess capacity that must he absorbed before demand pushes prices upward. Khater says it may take many months, if not years, for a robust housing economy to return.

In an interview with Real Estate Economy Watch, Khater said that the stimulating economic effects of last year’s tax credit and the Administration’s HAMP program to modify delinquent mortgages are virtually past and now the organic market forces driving housing markets have taken prices close to the bottom as measured by fundamentals like purchase vs. rent or price vs. income comparisons.

In January CoreLogic forecast that prices nationally would fall an additional 5 to 10 percent more before reaching bottom this year.  Last week, the research firm reported prices had fallen 6.5 percent in February on year-over-year basis.

“Falling prices tend to overshoot fundamentals, so we’re not quite there yet,” Khrater said.  “But when we get there, expect a weak recovery for some time.”

Through the fourth quarter of 2010, CoreLogic reported 11.1 million homeowners, representing about 23.1 percent of all residential properties with a mortgage, owed more on their mortgages than their properties were worth,.  About 10 percent of borrowers have more than 25 percent negative equity.  With prices forecast to fall 5 to 10 percent during the year, CoreLogic forecast that the most negative equity will rise is another 10 percentage points.

Until prices appreciate sufficiently to markedly improve values and move homeowners above water, negative equity will continue tp freeze millions of owners in place and make them vulnerable to foreclosure.

Currently CoreLogic is seeing the discount between distressed and not distressed sales growing and the distressed market share has risen to 34.5 percent from a low of 24.1 percent last June, at the end of the tax credit boomlet.  The failure of HAMP to reduce the supply of foreclosures has contributed to supply, and state moratoria and the robosigning scandal created a national backlog and delayed thousands of foreclosures from reaching the market until now.

Khrater said that the delays are causing properties to be vacant for longer periods of time, which may be making them difficult to sell.  Banks may be setting prices lower move aging properties, and giving additional discounts to investors paying cash.

Yet on a weekly basis, CoreLogic is seeing prices among non-distressed properties improve in markets ranging from San Jose to Boston.

Financing for residential real estate investments is more difficult to get than ever and many Individuals who manage to buy properties to fix up and flip are finding they are muscling both amateur investors and prospective homeowners out of the action, snapping up the cheapest properties and helping clear out the excess supply of homes on the market

Data on cash deals is difficult to come by, but First American CoreLogic, which plans to release a report soon on all-cash deals.

 ”I think it is important to separate investors vs. speculators. I think speculators are finding it tough right now and are certainly declining. Investors on the other hand are in my opinion growing,” said Sean O’Toole, founder and CEO of ForeclosureRadar.

 In Minneapolis-North, median sales prices have fallen from around $150,000 in 2006 to around $50,000 today - due almost entirely to the fact that this neighborhood has been one of the hardest hit by foreclosures. At these prices, these properties have become excellent investment opportunities for rentals, which create competition with the prospective owner-occupant buyer.

Investors have come in with cash offers.  When presented with multiple offers where most terms are equal, many banks will take the speed and surety of the cash offer versus entrusting a successful sale to a buyer that needs financing to close.  In fact, cash can often mean double-digit percentage discounts on the list price vs. a financed offer.  These cash offers have succeeded so well in Minneapolis-North recently that while cash offers were only 5 percent of the transactions in 2005, they made up nearly 65% of the sales in 2009.

 In San Francisco, Bay Area real estate investors have gone on a shopping spree, snapping up homes in low-cost communities outside the region as falling home prices and low mortgage rates make the economics of buying rental property far more appealing, according to Sue McAllister of the San Jose Mercury.
In the third quarter of this year, for instance, buyers in the nine-county Bay Area purchased nearly 3,000 homes outside the region, up 58 percent from the same quarter last year, typically for prices well below 2008 levels.

The wave of investment was led by purchases in communities stocked with rental housing, with Sacramento, Las Vegas, Stockton and Tracy among the top destinations for Bay Area residents’ out-of-area real estate spending, according to information compiled for the Mercury News by MDA DataQuick.

Since the real estate markets went south in 2006, owners who can afford to wait to sell have been doing just that. Unlike job relocators or foreclosure victims, these are people who have a choice, and many have chosen to delay lifestyle changes because of the market. They see no reason to list their properties when values have dropped a third and the months’ supply is in double digits. No doubt a significant percentage of prospective sellers are underwater on their mortgages and are waiting for the promise of positive equity before they sell.

Intuitively, we have known this pending supply of properties was out there, but no one has known how large it might be-until now. Its size is determined in part by how high prices might rise. Having waited many months, it makes sense that most owners would not sell at the first blush of price stabilization but would wait until they stand a chance of getting what they think their home is worth.

A recent national survey looked at this issue and produced what may be the first data that measures the size of the pending supply. It found that 10.7 percent of the nation’s 75 million homeowners have chosen not to sell at current market prices. That’s a huge number, 8 million homes, or about a two year-supply.

However, these properties won’t come on the market all at once. There is a dynamic relationship between the listing of these properties and prices. They will list in waves as prices rise to levels sellers find attractive. In the current market, they will have to wait many more months to see those kinds of increases. Many will lose patience and sell at a loss. Other owners will wish they could make a chance and will quietly enter the ranks of the pending supply

If and when home prices eventually rise by 5 percent, the survey found that 31.3 percent or 2.5 million owners will put their homes on the market. Should prices rise 10 percent, an additional 9.6 percent would sell, adding 760,000 more homes to the inventory. At 15 percent, 20.7 percent more would sell, representing 1.6 million homes. That’s a total of about 5 million homes that would to on the market at 1increases of 5 percent or less. It would take a rise in prices of 20 percent or more to get most of the remaining sellers-28.4 percent or 2.27 million homes-to sell. Ten percent of owners said that either wouldn’t sell at any price or didn’t respond to the question.

Perception is as important as reality when it comes to anticipating what owners might do. Zillow has sponsored some interesting research and recently found that most homeowners - 74 percent - believe their home will not decline in value in the coming six months, effectively calling a bottom to their own home’s housing slide. One in four homeowners (27 percent),in fact, think their home’s value will increase in the next six months, while nearly half (47 percent) believe their home’s value will remain the same. Homeowners were optimistic when it came to predicting home values in their local markets. About two-thirds of homeowners believe home values in their local markets will increase (26 percent) or stay the same (37 percent) over the next six months. Thirty-seven percent believe home values will decrease.
The reason most owners sell is space related; either they want more or less. The second greatest reason is a change of lifestyle-retirement, divorce, starting a family. What sacrifices are American families making because they can sell their homes? Are young families renting longer than they would like? Are retired couples holding on the family home? Are children making do with bunk beds and are divorced couples drawing lines on the living floor so that they can continue to live in the same space until they can afford to sell? Is the real estate crisis warping the way we live?

The good news is that the owners of the pending supply are prospective buyers themselves and their entry into the market will create demand for many of the houses other pent up supply owners are selling. Their income exceeds $50,000 and most are over 35. These are “move-up” buyers, most of whom will use proceeds from their sales to buy new homes.

The pending supply hangs over the market like a shadow. In light of size found in this survey and its potential impact on the market place, we know very little about the pending supply. We need to understand its composition nationally and locally, and track it on an ongoing basis. We need to understand better how owners perceive their markets and what will motivate them to sell-and to buy.

As we look forward to price stabilization and improved prices, should we fear the pending supply as a damper on the market or welcome it as the first step in the process to free millions of move-up buyers to buy mid to higher-end properties?