NAR Data Points to Recovery, but How Long Will It Last?

The take on the state of the housing market, according to ""Capital Economics"":http://www.capitaleconomics.com/, is that the U.S. is currently in recovery mode. Although other reports may contend the bottom is yet to be reached, the research firm points to increasing home sales and the drop in excess supply, which leads to price gains, as reasons to believe the U.S. is beyond bottoming out.

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Data released on Tuesday from the ""National Association of Realtors"":http://www.realtor.org/ (NAR) backs what Capital Economics had to say. The NAR reported a rise in existing home sales in April after a two-month drop and a rise in prices.

Lawrence Yun, NAR chief economist, responded to the data by also stating the housing recovery is underway, and said it ""appears to be extending to home prices.""

All-cash sales made up 29 percent of transactions in April and investors purchased 20 percent of homes, according to the NAR.

Capital Economics said cash buyers and investors are driving improvement in sales, which explains the growth despite tight lending conditions.

The NAR also reported a 10.1 percent yearly increase in the median price of existing homes, and a monthly and yearly rise in median prices in all four regions.

Calling the rise in home prices a big surprise, Patrick Newport of ""IHS Global Insight"":http://www.ihs.com/products/global-insight/index.aspx, said without more information, it impossible to tell what caused prices to rise last month.

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""Home prices can shoot up, among other reasons, if demand picks up sharply, if the proportion of distressed sales drops sharply, if the proportion of more expensive homes sold rises sharply, or some combination of these,"" said Newport.

Even with positive reports on the housing market, the question of how long this will last still remains.

In a separate report released Monday, Capital Economics pointed to two pressing issues that threaten to shake up the market and derail recovery: the impact of the eurozone crises and the settlement's effect on foreclosure inventory.

""If the euro-zone crisis prompts a second full-blown credit crunch in the US, the housing recovering would be quickly snuffed out,"" said Paul Diggle, author of the Capital Economics report. ""However, we think that the US will shrug off a limited euro-zone break up, allowing the housing recovery to continue.""

Although it's still early, there has also been speculation that the $25 billion multistate robo-signing settlement will lead to a surge of homes moving from shadow inventory to the visible supply, further adding to the already high share of distressed homes on the market.

""If banks push forward with foreclosure auctions for the one million homes in the foreclosure process that would have been brought to the market over the previous 18 months had it not been for delays following the robosigning scandal, then supply conditions could loosen and prices could fall further,"" the report stated.

Even if foreclosure inventory did increase due to the settlement, Capital Economics believes the demand from investors and improvement in first-time and repeat buyers should be enough to absorb the increase in supply.

While the research firm believes the housing market will maintain its composure through rough spots, Capital Economics said even the most drastic of government interventions is limited in speeding things up, and right now, time is probably the best healer.