Residential Housing Ready to Awaken?

It’s unclear how many properties will hit the market, but conservative estimates put the number at over a million.

Still, of the top 20 markets in the new wave, nine are in California, five in Florida and two in Ohio, according RealtyTrac, so the impact will be fairly concentated.

Another question is whether that wave will be a tsunami or merely a breaker. If the market is in fact recovering, why would banks want to weaken it again by deluging it with cheap properties.

“You could see them trying to gauge the market like speculators,” answers Howard.

Kim of Barclays is among those who say the threat is exaggerated, perhaps misunderstood. He estimates that 40 percent of the foreclosed properties haven’t had a payment made on them in two years, which means they are in poor condition and thus unattractive to many buyers.

“The deterioration has been great," he says. “It flies in the face of all the bearish arguments.”

Kim’s thesis is that there are now two kinds of buyers in the market; those who’ll take a chance on a bargain-priced, distressed property and those who’ll only make a conventional transaction. He says it helps explain why the Core Logic data he used for his latest report shows non-distressed prices flat or slightly higher in the past year.

“Even if the banks decide to move their inventory more aggressively, and I suspect they will, it's OK because the buyer is making a distinction,” explains Kim.

“There's a ready appetite for it," adds Smith of Realogy, who agrees that there’s substantial pent-up demand for housing in general but also great uncertainty. “If you can relieve consumers of some of that uncertainty, then I can see a nice little recovery.”

That’s the psychological dimension of the wild card — the negative feedback loop that has plagued housing.

Optimists say most of the uncertainty and fear is gone.

“The major driver of negative sentiment was that prices were going down across the market by large amounts,” says Kim of Barclays. “Buyers need to see a stabilization.”

A contributing element to that is the unwinding of government intervention — whether to artificially spur demand — as was the case with the first-time buyer tax incentive program of 2009 and 2010 — and/or to retard and prevent foreclosures.

Many regard those efforts as largely ineffective, if not counter-productive because they delayed the inevitable — a deep descent to a market bottom, which has finally been touched.

“The numbers you’re looking at you can trust,” says Kim. "There are no exogenous factors.”

Though tight lending conditions and forthcoming regulations of the Dodd-Frank legislation are still an issue for some, sweeping housing finance reform is off the agenda for at least the next year.

“You’re back to the natural forces of the market,” says Howard of the builders association.