Housing Recovery Myths You Should Ignore

by Reno Manuele

There are myths involving the housing recovery that, as journalists and analysts have shown, are downright incorrect.


A funny thing has happened the last couple of months – some people have become uncomfortable with the housing recovery. Maybe it’s because the housing downturn was so drawn out; maybe it’s because the various government rescue efforts, at least until very recently, proved ineffective; or maybe it’s because the downturn was so deep, a turnaround seemed unimaginable.

Whatever the reason, several counter-narratives have emerged amidst the housing recovery, all claiming to pinpoint some aspect of the recovery that is flawed, faulty or prone for internal combustion; thankfully, there are ace reporters out there willing to contradict those claims, and the Wall Street Journal‘s Nick Timiraos served that purpose with a recent article.

Myth: Housing it teetering on the shaky backs of institutional investors.
The  rise of institutional investors was no doubt a major part of the housing recovery, what with investors sucking up the thousands of vacant REO properties that littered the housing landscape; Blackstone Group, for instance, has alone purchased roughly 20,000 homes through February. This myth suggests, then, that housing will falter if those institutional investors get out of the game.

Don’t get us wrong – 20,000 is a big number, but as Timiraos points out, it’s quite small compared to the 5 million total existing-home sales of 2012; furthermore, institutional buyers made up just 25 percent of all government REO sales, and even in housing markets defined by distressed sales, the situation was not much different; in Phoenix, for instance, institutional investors made up 26 percent of sales last year, according to CoreLogic.

Myth: Shadow housing inventory is lurking around the corner.
We see this one constantly, that the big bad shadow housing inventory is lurking around the corner, ready to pounce on the housing recovery and vanquish its progress. As frightening as that bogeyman scenario may seem, the data does not support such fears.

Sure, there are still 4.9 million loans either in the foreclosure process or in some state of delinquency, but according to Mortgage Stanley data, that’s down 44 percent from the 2010 peak of 8.9 million loans. Furthermore, as long as active housing inventory remains as low as it’s been (it’s currently at a seven-year low), and as long as banks and investors remain rigorous in the unloading and purchasing of distressed properties, the shadow housing inventory poses no threat to prosperity.

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