The National Association of Realtors (NAR) released April pending home sales numbers which showed a rise of 6.3% from March, a the highest reading since October 2007. Sales are still well below April 2007.

But if you read NAR’s press release you might not even know that this was the worst housing market in decades.

In fact, things sound pretty rosy.

Lawrence Yun, NAR chief economist, said pending sales contracts have picked up notably in areas undergoing significant price drops.

“Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants,” he said.

“Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts.”

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the market may be breaking its holding pattern.

“It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” he said.

“Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004, but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future. Recent declines in mortgage rates on conforming jumbo loans and a return to sound but not overly stringent underwriting standards will permit more people to qualify for a loan.”

Yun said the underlying fundamentals point to a pent-up demand.

“Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” he said.

“The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely. On the other hand, it’s unclear what role consumer confidence will play in the coming months.”

And, see, things are even “picking up” in horrible markets like Detroit and Las Vegas. The end MUST be near.

“We’re seeing healthy price gains in moderately priced areas like Erie, Pa., and Corpus Christi, Texas, and double-digit gains in others,” Yun said. “Our most recent data shows sales rising strongly from a year ago in some areas that experienced sharp price drops, including Detroit and Las Vegas.”

Yes- sales are up. But they’re up because buyers ARE being practical. The banks are listing the foreclosures for pretty attractive prices (especially compared to recent years.)

If you live in San Diego and saw small cottage houses selling for $600,000 that are now priced at $300,000- you would have thought you had died and gone to heaven too.

It IS all about affordability. Sales will increase if people actually have the income to buy the property (with a downpayment.)

What NAR isn’t saying is that many of these “sales” are in the foreclosures. The regular properties on the market at 2005 prices aren’t selling. These homes are what are piling up in inventory around the country.

Is this the bottom? Not even close.

I know it’s NAR’s job to rah-rah about real estate. That’s their market.

But they’ve been saying for awhile that this was the bottom. But like the decline of the Nasdaq, when the market hits the bottom, no one will be announcing that it finally made it there.

It will happen quietly. With no one paying any attention.

I just heard on CNBC this morning that the credit crisis is over. All of the bad news is behind us. Good times will be here again.

Heck- look at the housing numbers. They went UP for the first time in five months. Housing starts were up 8.2% in April- which means builders are building MORE houses than they did last month.

Isn’t that great?

They’re apparently doing this even though there are a record number of homes sitting empty around the country. That “inventory” is massive.

But hey- what’s not to like? So a few more are now being built.

What’s “supply v. demand” anyway- when the housing bottom has been reached?
Yes- that’s also what I heard on CNBC this morning. This is the bottom of the housing market. We all should be buying in now because it only has one place to go- and that is up.

I’m all for being optimistic. And yes, someday housing WILL rise again. But the bust only started about two years ago- after over a 10 year bull run. Historically, that would mean we’re not even close to the bottom of the market.

Additionally, the bottom of busts happen when no one is paying attention and when no one is buying the asset. Take the bottom of the Nasdaq bubble. You couldn’t get anyone to buy shares of Yahoo or Cisco. In fact, you couldn’t get people to buy much of any stocks (and still- many people don’t “believe” they can make money in the stock market.)

In Chicago, I still hear stories of flippers, investors, and speculators in the housing market. That doesn’t seem to indicate a bottom to me.

But maybe I’m just wrong and CNBC is right. Maybe housing will rise from the dust this summer- despite the banks tightening credit and actually requiring a downpayment.

Maybe…or maybe not.

The stock market, however, is making quite a few people money right now. Housing will too- someday. But that day is not right now.

There is an Op-Ed in the Wall Street Journal today arguing that the housing crisis is over and that April 2008 was the bottom.

The reasoning? Housing is now “affordable” again.

The author of the article, called “The Housing Crisis is Over“, is a New York hedge fund manager.

Forgive me for thinking that someone who makes millions (billions?) and lives in Manhattan can begin to understand what is going on out in “main street” America. But let’s say he does. This is what he argues:

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

Apparently- because housing is now a much lower amount of your take home pay, it’s now “affordable.”

But what’s different between now and 2005?

Lending.

In 2005, you could get a 100% financed loan. You didn’t need a dime to go to the closing table and buy a house. Now, those loans are almost extinct. In most cases, you need at least 3% down (to get an FHA loan) and more if you’re just going to your local bank. If you’re in a “declining market” area (which is over 200 metropolitan areas), then you will need at least 10% down.

In the housing busts of the 1980s and 1990s, you also needed a downpayment and the housing market eventually recovered. But as recently as 1990, Americans were saving about 8% of their income every year.

The savings rate now? Negative 1%.

The REAL question isn’t that housing is more affordable, it’s who can come up with the now required downpayment.

Let’s say you make $100,000 a year and want to buy a $400,000 house. You would need $40,000 for the downpayment. Let’s say you’re a first time homebuyer and have no savings. How long will it take you to save the $40,000? (we’ll assume you get no parental help.)

An aggressive saver could save $1500 a month (after taxes) into a house fund. At that aggressive savings rate it will take you 26 months to save the downpayment.

So I ask Mr. Moulle-Berteaux, the author of the WSJ article: we hit the bottom last month?

He talks about the decline in new home inventory. Some of that, I would argue, is from developers renting out empty housing units. It is not “real” sales.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

And, I would argue, the new home inventories pale in comparison to the existing home inventories where investors are being caught with properties they can no longer sell and foreclosures are surging.

The housing crisis is over?

Nah.

It’s only just beginning.

The Detroit metro area has the distinction of being #2 in the nation in foreclosures (only Miami has more). We all know Detroit’s problems. Jobs are gone. Unemployment is high. The state of Michigan is in a recession.

And the housing market is brutal. Nothing is selling. Foreclosures are pushing down prices in nearly every neighborhood.

Detroit is a “dying” city. Or is it?

It has long been my view that as the climate changes, Americans will not longer be so eager to move to the deserts of Arizona and Nevada but instead will eagerly be eying the Great Lakes region for both its plentiful water and food.

There’s a reason, after all, that the Indians prospered in the Great Lakes region and why the earliest settlers came in droves. Chicago, after all, was nothing more than a swamp, literally, only 150 years ago.

Some investors are making a bet that Detroit will recover in the next decade. They’re buying houses on the cheap. Do you have the guts to do it?

From the Detroit Free Press:

Investors from as far away as Hong Kong and Hawaii are coming to Detroit to make their fortune buying foreclosed homes in bulk.

“This is a millionaire’s market,” said Jeremy Burgess, a 28-year-old investor from Washington state who has been living in Detroit for the past year. “I feel like I’m driving through the city and stopping to shovel diamonds in the back of my truck.”

His wife, Jeanna Kiehle, and partner Jared Pomranky formed Urban Detroit Wholesalers to scour the city for houses they can fix and rent. The idea is to generate cash flow until the market improves, and they then can sell the houses. They own 38 houses now and close on 15 more before the end of the month.

Some buyers are looking to buy larger numbers of homes, perhaps 100 or more at a time.

People tuned in to the Detroit area’s distressed housing market say the majority of sales now are to investors, often in bulk deals.

Sales were up dramatically in Detroit in February, rising 49% from a year before, and realty watchers say foreclosure properties played a key role in the increase.

How cheap is it? Houses can be had for $5,000 to $10,000 (yes- that’s the TOTAL price.) Even in the “best” neighborhoods in Detroit, four bedroom vintage colonials can be had for $150,000- $200,000. You can’t even pay for the materials to build that house anymore at that price.

According to the article, 80% of sales in the city are now being bought by investors.

Are they foolish or are they smart?

Smith Kitporka, 28, an investor in San Jose, Calif., said he has been buying Detroit foreclosures for two years, often paying as little as $10,000.

“No war-zone houses or anything like that. Just good houses in good neighborhoods,” he said.

Burgess said he can pick up an $85,000 house in Detroit for $20,000 to $30,000 these days. Listings on Fannie Mae’s Web site show many Detroit foreclosures for less than $25,000.

Are the California and other out-of-state buyers simply lured in by the belief that these houses are incredibly cheap without understanding the market? Perhaps.

It’s hard not to get lured in. Check out this house on Craigslist. Priced at $344,900. Bank-owned. Six bedrooms. In Grosse Pointe Park (nice Detroit suburb.)

Detroit: City of the Future?