It’s not being reported in the main stream media yet, but it soon will be. A real estate recovery is in the process of forming. That’s right; the momentum is beginning to build as home sales are entering the cyclical time of the year better known as spring. Noticeably absent in the last two years, the end of March or beginning of April usually initiated the home buying process as year end taxes could be filed away for another 12 months. As we begin the home buying season is the current enthusiasm built on a solid foundation or is it constructed on a dirt hillside? One is likely to last and endure while the other one may collapse at any given time. What is responsible for the new interest in the real estate market and is it likely to continue?

Inventory is Down and Prices are Trending Higher

March Home Sales

I took a quick look at the Pasadena home sales for the month of March ’09. Sales of residential units (single family and condo/townhome) were 97 units compared to March ’08 of only 75 units. Median prices were $475,000 this past month compared to $587,500 last year. The median price also increased from February’s ’09 number of $435,000. Unit sales are still below the levels we saw in March ’07, when the market began its fall.

Too Much Fed Influence

The policies of the federal government have a tremendous influence on the housing market. If we go back and look at the easy money and credit policy that was prevalent during the 2000-2005 years, the housing market boomed. And for the declines we are experiencing now, Alan Greenspan did his best Vinny Barbarino impression saying, “what”, “where”, “when”, in other words Hey, it ain’t my fault the economy crashed.

Are we now bearing witness to a repeat of our past with too much government intervention? Taking a look at what the current policies are and what they are destined to do for housing are we seeing a return of the house of cards housing market? We have interest rates between 4.5% and 5%, historically low and a direct result of the fed pumping money into long term treasury bonds. We have first time home buyer tax credits that were piled on top of other home buying incentives last year such as a $7500. Not only is the current policy devised to get people into homes it is also designed to allow people to keep their homes. Programs to forestall and delay foreclosure are propping up housing prices all over the country. Loan modifications and debt forgiveness have been initiated to keep prices from falling further.

The Housing Merry-Go-Round

When you think about the policies of the past, are they similar and cloaked in a euphemistic shroud? How long can interest rates stay below 5% which increase consumer participation by making homes more affordable? How long before homeowners who have been given a second chance find themselves facing another delinquency?

Granted, some checks and balances are now in place, but we also thought home prices would keep rising and we could have our own pyramid scheme, however we soon found out that we were the last one in and in this game the last one in loses.