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Shadow Inventory Lurks Behind Recent Price Gains

Home prices rose 4 percent during the third quarter, according to the latest ""IAS360 House Price Index"":http://www.iaservices.com/ias360-house-price-index-from-ias from ""Integrated Asset Services."":http://www.iaservices.com/ The index also posted a 0.4 percent gain from the beginning of the year and a 0.6 percent gain from the third quarter of last year.
[IMAGE] ""I did a double-take when I saw the numbers,"" says Paul Sveen, CEO of Integrated Asset Services. ""The markets continue to act as though we've seen a bottom and buyers should be encouraged to go out and buy.""

""Based on market volume and demographics of homebuyers during the 3rd quarter, there is a clear disconnect between the pricing indexes and real market strength,"" Sveen continues. ""A large volume of distressed property still overhangs the market and it continues to hold most markets hostage.""

However surprising, recent rises have not been enough to bring prices near their 2007 peak. As of the third quarter,


national housing prices were 22.7 percent below that peak.

Distressed sales reportedly made up one-third of home sales in 2010 and were expected to rise this year. However, foreclosures are on the decline -- falling 7 percent from June to July and 39 percent from July 2010 to July 2011.

According to Sveen, we are simply seeing ""the calm before the storm.""

He says, ""The reality is, lenders, for any number of reasons, are increasingly unable to pursue foreclosure. That means fewer foreclosure properties are coming to market and prices are not truly reflecting the residential housing market.""

Nonetheless, the recent ""calm"" has made its way to all regions of the country. The IAS360 found price increases in all four Census regions in the third quarter with the highest occurring in Midwest with 4.4 percent.

The South followed with a 4.2 percent increase, and the Northeast fell in line with a 3.8 percent increase.

The West -- the region hardest hit by the housing crisis -- posted a 0.3 percent increase for the quarter.

Despite these increases, prices in all four regions remain below their levels last year.

The West reported the greatest annual decline, -6.1 percent. The Midwest reported a 3.5 percent decline.

The Northeast and South followed with annual declines of 1.2 percent and 0.5 percent.