By ANDREW JEFFERY

This post first appeared on Minyanville.

Despite Herculean efforts, the Federal Reserve is losing its battle to keep mortgage rates at all-time lows.

As fear that we’re headed for imminent collapse slowly wanes, investors’ appetite for risk is coming back. This renewed confidence has helped buoy stocks, and the major equity indices have rallied more than 30% from their March lows. The shift, however, has come at the expense of the Treasury market, which has been in a 7-week slump.

According to Bloomberg, big money managers like Blackrock (BLK) are betting the Fed will step in to support the Treasury market (again), as regulators hope renewed Treasury purchases will push down mortgage rates (again).

Bond prices and yields move in opposite directions. When investor demand falls, so do prices, pushing up yields. And as investors shun the safety — but relatively low return — of government-backed debt, the impacts are felt throughout the credit markets. Of concern to the Fed, and what has led Chairman Ben Bernanke to increase Treasury purchases in the past, is the effect this dynamic has on mortgage rates.

A mortgage is nothing more than a long term bond, given to a borrower to purchase a home. So when lenders get fearful they’re not being compensated for tying up money for as long as 30 years, they increase rates. Further, as the specter of inflation rises, lenders demand bigger interest payments to keep up with higher prices. In other words, when dollars in the future are worth less than dollars today, banks demand higher payments to make up the difference.

Keeping mortgage rates low has been a cornerstone of Washington’s efforts to jump start the flagging housing market. But with rates at the highest level since April, the “smart money” is betting the Fed may return to the Treasury market en masse.

Paradoxically, even as the Fed tries to keep interest rates low — which are rising in part due to the expectation that higher prices loom in the years ahead — its actions increase the likelihood of future inflation. Running its printing presses around the clock has consequences, even if Fed officials are loathe to admit it.

Minyanville’s Mr. Practical often discusses the fallacy that credit markets are improving. As he points out, only in corners of the market where the government has stepped in to support lending is any so-called “normalcy” returning.

So too in the mortgage market.

Loans backed by Fannie Mae (FNM), Freddie Mac (FRE) and the Federal Housing Administration account for the lion share of mortgages currently being issued in this country. Aside from the occasional jumbo loan written by banks like JPMorgan (JPM) or Wells Fargo (WFC), government mortgages are the only game in town. Coupled with the Troubled Asset Lending Facility (or TALF), which funnels money into the market for mortgage-backed securities, the home-loan market remains completely dependent on government support.

This is one reason recent “strength” in the housing market will provide transitory. There’s a limit on how much government can control markets, as evidenced by mortgage rates that move persistently higher every time the Fed eases its aggressive intervention. Fundamentals, not subsidies, will provide a true floor in prices.

And as banks prepare to unleash a firestorm of foreclosure inventory into the market, fundamentals will remain pointed south, thereby pushing down prices. And as foreclosures continue to infect higher end real-estate markets, these price declines will be felt by a growing — and more prosperous — segment of the population.

Mortgage rates, left to their own devices, would be far, far higher without government support. This is the message of the market - one bureaucrats in Washington seem unwilling to learn.

By ANDREW JEFFERY

This post first appeared on Minyanville.

As a growing number of economists, pundits and real-estate professionals assure us the housing market’s worst days are over, prospective home buyers need a trusted advocate to make sure they don’t end up on the wrong side of someone else’s trade.

More often than not, that person will come in the form of a real-estate professional working on the buyer’s behalf and earning a commission for their trouble. Below are 5 simple questions you can ask to gauge whether a given candidate is looking out for your best interests - or his or her own.

But first, a word on terminology.

The terms “agent,” “broker” and “realtor” are often thrown around interchangeably. This isn’t exactly right. While laws differ from state to state, acquiring a broker’s license typically requires a series of courses on real estate practices, principals, finance, law, appraisal and the escrow process. A broker can use his license to form a brokerage, and the company can then perform services as a licensed entity.

In many states (like California) a licensed broker can not only conduct real estate transactions, but earn commissions for arranging mortgages and other types of real estate-related loans. For this reason, a brokers license offers the holder huge potential earnings power.

An agent is a step below a broker. While requiring a license, an agent is normally treated as an employee of the broker and thus the broker is responsible for the actions of the agents under his charge. If an agent screws up, his reputation (and license) as well as his broker’s is on the line. Agents can typically conduct the same transactions as a broker, but must do so under the supervision of their boss.

Finally, the term “Realtor” is used to specifically identify a real estate broker or agent who is a member of the National Association of Realtors, or NAR. The NAR is a nationwide trade group that collects member dues, lobbies in Washington and runs marketing campaigns urging Americans to buy homes. The NAR is conspicuous in its role as national housing cheerleader, as it’s chief economist Lawrence Yun has been predicting an imminent bottom in prices since early 2006.

1. Is it a good time to buy?

Of any question a buyer is likely to ask his broker (or agent), this may be the first. And the most important. The answer itself isn’t nearly as important as how the broker responds.

Any broker that says definitely that yes, this is a great time to buy, should be eyed with skepticism. Without knowing a buyer’s specific circumstances, understanding localized market trends and the underlying value of a specific home, saying it is a great time to buy is a sales pitch, pure and simple.

Brokers will often cite low interest rates, high levels of affordability, low replacement costs and home prices that have fallen precipitously from their peaks as reasons its never been a better time to buy. But ask yourself, all those conditions were true six months ago — was it a great time to buy then?

The proper response to this question from a responsible broker is to answer the question with a question, or questions. How much money have you saved? How long do you plan on owning the home? How much money do you make? How much is your other debt service? What are your contingencies if you lose your job? How is your credit? What are your other motivations for wanting to buy?

Only armed with answers to these and other questions can a broker — or a buyer for that matter — determine whether its the right time to buy.

2. Are home prices near a bottom?

As with the previous question, the answer should be in the form of a question. Where and when are you looking to buy? Do you want a move in ready home or one that needs some work?

While there is no crystal ball as to the direction of home prices in the near or long term, a broker should have a clear understanding of the dynamics effecting his or her local market. I hear ad nauseum here in California that home prices are stabilizing because demand is up, prices are down and homes are receiving multiple bids. But those are external symptoms of market machinations underneath the surface.

Foreclosure moratoriums put in place late last year limited the number of bank owned homes dumped onto the market. This constricted supply, and coupled with tax incentives, low interest rates and aggressive marketing from the NAR, led to a situation where in some areas, for some homes, demand outweighs supply. But that doesn’t mean the situation will persist — in fact, the smart money is betting it won’t.

This dynamic is far from ubiquitous, as most high end markets remain illiquid with prices tumbling into an apparent vacuum.

Real estate is, and will always remain, local.

3. How do you determine which homes to show me?

Not to beat a dead horse, but this question should be met with yet another series of questions. What size home are you looking for? Are schools important to you? How close do you want to be to public transportation? Do you care about being within walking distance to shops and restaurants? What style of home do you like? Do you want a yard?

A good real estate broker should be a blank slate, absorbing your preferences, desires and reasons for buying without injecting his own bias. Just because your agent loves a certain home and thinks its a great buy, doesn’t mean it fits your criteria. Don’t be afraid to tell your broker that you don’t like a particular home.

Brokers should show you a variety of homes, below, within and above your price range, to give you a sense of what is out there on the market. With prices still coming down in most areas, you may walk inside your dream house and decide its worth it to keep renting — and saving — for another year until prices fall to something you can afford.

Until you feel comfortable your broker is showing you everything that may fit your criteria, perform your own searches on the myriad free websites out there. Redfin.com is a great resource for the metropolitan areas it covers, while Trulia.com, ziprealty.com and even Realtor.com have excellent free search features.

4. What are my financing options? How much can I afford?

While real-estate brokers are often legally allowed to arrange loans, more often than not its a dicey legal proposition for the broker to sell you a house as well as a mortgage.

Nevertheless, brokers should be well-versed in available financing, rates, qualification requirements and whether sellers require a mortgage pre-approval letter to accompany any offer (these days, most do). If your broker doesn’t know the answer to a certain question, that’s OK as the rules change almost daily, but he should actively pursue the answer and report his findings back without too much delay.

Shopping around for the best loan terms can be a time consuming and confusing process, but it must be done. Gone are the days where Wells Fargo (WFC) always gave you the best rate, or your buddy down at Chase (JPM) could get you a great deal. Keep in mind most loans these days are originated to Fannie Mae (FNM) and Freddie Mac (FRE) guidelines, which means most big lenders offer similar loan programs.

All things being equal, choose a lender you feel you can trust (not just the one offering you the best deal) and always have a backup.

Lastly, never trust a broker to “tell” you how much you can afford. This decision, especially in an environment where home prices are likely to fall for the foreseeable future, should be one each buyer must make for himself.

Plans change, life doesn’t always follow the path you hope it does. Being conservative in what you can afford, leaving a cushion and planning for the unexpected are paramount in today’s uncertain market conditions.

5. Provide me with examples of a few closings you are the most proud of over the past year.

This question gives your broker a bit of an opening to sell himself, and will go along way towards helping figure out whose side he is actually on. If your broker launches into a a story about this cute young couple he helped get into the house of their dreams, move along, cute young couples rarely make savvy home buying decisions and are easy prey for aggressive brokers. Also pass if you hear things like, “I found this great house right when it came on the market, we jumped at it and got in before the other buyers had a chance to bid.”

Sellers, by and large, are still unrealistic about how much they can sell their homes for. This means that when houses come out onto the market, the asking price is nearly always above where it will actually go for. Be patient, make your broker work for his money.

Although there are situations where multiple bids will come in from prospective buyers, chances are this isn’t a house you want to buy. Most of this sort of activity is going on in areas with high levels of foreclosures. Now that the moratoria are lifted, banks will start flooding the market again come next month. All that great news about limited supply will become ancient history as prices plunge once again. The house itself may be great, but just because homes are “cheap,” doesn’t mean they won’t get cheaper.

A good response is one where a broker tells you a story of a buyer he worked with for months, go to know a few neighborhoods that fit all the pertinent criteria, and waited for the right house to come on the market. Many sellers will list their house at a “hopeful” price for the first 30 or 45 days, then drop it down to something more reasonable. Rarely will a house sold in the first couple weeks be a “steal” for the buyer.

Your broker should stress that patience, research and shrewd negotiating got his client a great home at a great price.

To be sure, there are other questions to ask of a prospective broker, but this is a good start. Finding a broker should be treated like a job interview, after all, even though the commission may not be coming out of your pocket, you, as the buyer, end up paying one way or another. Make sure your broker is worth his salt.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Residential real estate is about to get very weird.

In the coming months, housing-market data is likely to show price stabilization in many of the country’s hardest hit areas. Pundits, government officials and real-estate professionals will loudly proclaim the worst of our real estate woes are behind us. Back in reality, however, this data will simply reinforce the axiom that there are lies, damn lies, and statistics.

The lion share of home price declines have, thus far, been focused in low-end markets -areas where property values became the most detached from housing-market fundamentals. Even though the high end is now declining, sales activity is still heavily concentrated in the country’s most distressed markets.

Taking a look at the data below compiled by my firm, Cirios Real Estate — which depict sales transactions for the part of the San Francisco Bay Area between San Francisco and San Jose known as the Peninsula — one can see how rising home prices from 2003 to 2007 shifted sales transactions towards more expensive properties. This makes intuitive sense, and should naturally push up both average and median home prices.

Click to enlarge

Since the market peaked, however, notice how the percentage of sales of homes under $400,000 shot up to more than 50% of sales in the first quarter of this year, from as low as 9% in 2007.

Conversely, sales over $1,000,000 that accounted for almost a quarter of transactions in 2007 now make up less than 9% of total sales so far in 2009.

This heavy concentration of sales in low-end markets is skewing home price data to the downside, exaggerating the impact of depressed markets on broad measures of prices.

As the foreclosure epidemic spreads outwards to more well-to-do areas, and job losses force previously stable homeowners to sell into a weak high-end market, more expensive homes will begin to make up a greater percentage of total transactions. This dynamic — not an overall rise in property values — is likely to push up average and median home price measures.

In other words, high-end markets will be falling as price discovery rears its ugly head, while low-end markets are flat at best, as price declines reach exhaustion levels and investors step in to buy. High levels of supply and looming shadow inventory of foreclosures will prevent meaningful appreciation in these distressed areas for the foreseeable future.

Meanwhile, data will show a housing market on the rebound.

No doubt, banks like Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC) will cheer the end of the real-estate slump. Real estate professionals will pound the table that now’s the time to buy (just like they said back in 2007). Government officials will proudly assert their mortgage-relief efforts were a success.

Nothing, however, could be further from the truth.

By ANDREW JEFFERY

This post first appeared on Minyanville.

For almost 2 years, we’ve been told government-backed loan modification efforts and foreclosure moratoriums would help ease the pain of the ongoing housing crisis. It’s not working.

Despite recent calls to the contrary — this morning’s came courtesy of real-estate mogul Sam Zell — residential home prices are still in free fall, and the bottom will remain elusive.

Picking up a trend noted weeks ago by housing blogs and other real-estate analysts, the Wall Street Journal reports banks and mortgage-servicing companies are pushing through foreclosures at the fastest rate in more than a year.

JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC), 3 of the country’s biggest loan servicers, scaled back foreclosure efforts in recent months at the request of the Obama Administration. Now, with the bans lifted, a new wave of repossessions are simply a matter of time. In California, notices of default and trustee sale, which precede foreclosures, spiked in March as moratoriums expired and lenders returned to “business as usual.”

Banks, especially those collecting payments on behalf of Fannie Mae (FNM) and Freddie Mac (FRE), say they’re doing everything they can to keep borrowers in their homes. But according to GMAC (GM), as few as 10% of struggling homeowners qualify for the Obama Administration’s highly touted foreclosure prevention program.

The logical conclusion is that this new wave of bank owned homes being dumped onto the market will put even more downward pressure on housing prices. And while this is true on a localized, market by market level, widely monitored home price indicators may not tell the whole story.

As noted by the Field Check Group, a real-estate analysis firm, delinquencies on jumbo loans are rising at an alarming rate. This is consistent with trends we have been seeing over the past 6-9 months as prime defaults are now rising faster than subprime.

Currently, low-end, inexpensive homes dominate sales data, dragging down median and average prices. Foreclosures, however, are creeping into high-end markets, and coupled with high levels of inventory and weak demand, prices are tumbling. As forced sales become more prevalent and transactions rise in these well-to-do areas, expensive home sales will begin to represent a larger portion of transactions used in broad measures of prices.

In the coming months, we could see home price measures falling at a less severe rate as the data mix becomes less skewed towards the low end. The bottom will be cheered, recovery will be lauded by the spin machine known as the National Association of Realtors, and buyers around the country will be lured into a false sense of security that housing has finally hit rock bottom.

Meanwhile, back in reality, property values — actual homes, rather than statistics — will keep sliding.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Despite recent reports to the contrary, the impending stabilization of the housing market is a myth. While declines in certain markets are coming to an end, real estate, in general, is still in freefall.

Last November, amidst a great deal of media fanfare, Fannie Mae (FNM) and Freddie Mac (FRE) enacted a temporary foreclosure moratorium, angling to give renewed loan modification efforts a chance to work. All the major financial news outlets jumped on the story, loudly proclaiming the mortgage giants were doing their part to give the housing market a chance to lick its wounds.

Then last week, without so much as a nod from the Wall Street Journal, Bloomberg or CNBC, the foreclosure ban was quietly lifted, right on schedule. A nod to the Washington Independent and Calculated Risk for picking up the story.

This is a not-insignificant development in the round of bottom-calling that’s gripped the world of real-estate punditry and prognostication.

Two datapoints are to blame for this misplaced optimism: A month-over-month increase in February new home sales, and one in existing home sales. In addition to rising transactions in the most depressed markets, many cite the eagerness of big banks like JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) to get foreclosed properties off their books a a sign supply is quickly being eaten through.

Meanwhile, reality tells a very different story.

In yesterday’s San Francisco Chronicle, Carolyn Said revealed a phenomenon familiar to real-estate insiders, but little appreciated by the financial world at large: phantom supply. Also known as “shadow inventory,” phantom supply represents homes banks have repossessed, but have yet to sell. In other words, it’s the pipeline of foreclosures still to come on the market.

According to data from RealtyTrac, a foreclosure monitoring service, banks are selling less than half the homes they take back from borrowers. This analysis is echoed by courthouse auction results, which show the vast majority of foreclosures are delayed, rather than being taken back by banks. Even fewer are being sold to third parties, which means asking prices are still too high.

Couple banks’ unwillingness to take back, market and sell properties with Fannie and Freddie’s recent lifting of their foreclosure ban, and improving housing data could prove to be short-lived. As one well-informed California real estate broker and Minyan writes, ”There is a huge logjam [of foreclosures]. With Fannie and Freddie’s recent announcement, the logjam may be coming undone.”

To be sure, being negative on the housing market is beating a very, very dead horse. However, with the spin experts at the National Association of Realtors flooding the market with ads — and with media cries of “stabilization” – prospective homebuyers should be skeptical of anyone who says the best deals will pass them by if they don’t act now.

By ANDREW JEFFERY

This post first appeared on Minyanville.

Countrywide was to subprime lending what Thornburg Mortgage was to jumbo-prime.

Now, both are out of business.

Thornburg said it expects to file for Chapter 11 bankruptcy protection, ending a nearly 2-year struggle to fend off creditors and survive the credit crunch. The company, once the country’s second largest independent mortgage lender, specialized in making jumbo loans to borrowers perceived to have little credit risk. Ever since the market for its mortgage-backed securities evaporated in the summer of 2007, however, Thornurg has been under siege.

In what now seems like ancient history, Countrywide nearly collapsed as its short-term commercial papers seized up, and investors fled Thornburg in droves. The Federal Reserve stepped in and shocked the market back to life, but the revival was short-lived. Enough damage had been done that any financial institution holding even highly rated securities backed by residential mortgages had a target on its back.

Thornburg’s stock was delisted last December as a series of last-ditch efforts by CEO Larry Goldstone failed to save the company. With investors buying nothing by government-backed Fannie Mae (FNM) and Freddie Mac (FRE) mortgages, Thornburg’s bread and butter — jumbo loans — became virtually worthless.

Although Thornburg’s demise was a foregone conclusion months ago, the fate of a company many once believed immune illustrates how far we’ve come from what began as a “subprime” problem.

High-end real estate is now fully engaged in the nation’s housing slump. Prime loans are souring faster than subprime ones as job losses spread up the socioeconomic ladder. Manhattan’s real-estate market is in the news again, as sales continue to plunge and prices follow suit.

Here in the San Francisco Bay Area, where expensive homes dominate many markets, high-end buying activity has slowed to a trickle. The chart below, from Cirios Real Estate shows purchases over $1,000,000 since the broader housing market peaked in 2005. Even without the statistical wizardry of seasonal adjusting the data, the trend is clear: America’s wealthy aren’t buying.

click to enlarge

Sales figures don’t look much better in the first quarter of this year, even though broad sales activity is up month-over-month. The bifurcation of the real-estate market continues, as troubles in the high end are picking up the slack while low-end markets grope for a bottom.

Foreclosures are even happening in some of the country’s wealthiest communities. In many of these markets, denial reigns as owners clong to the belief that the slump is temporary, their paper losses transitory. But as deleveraging continues, asset prices continue to fall, and forced liquidations creep towards the very wealthy, reality is slowly setting in.

Following a pattern set with both existing home sales and new homes sales, pending home sales bounced in February, up 2.1% from the previous month. The National Association of Realtors’ released its monthly index that tracks the number of signed contracts, showing a gain to 82.1, from 80.4 in January. A reading under 100 indicates a depressed market.

It seems everyone is jumping on the home buying wagon, even the chief economist at Standard and Poors is getting bullish “We are seeing a bottom in housing sales. People are coming in as bargain hunters. This is a good time to be buying a house.”

Meanwhile, home prices keep tumbling — the S&P Chase/Shiller Home Price Index recorded its worst monthly decline on record and one Barclays analyst said she doesn’t expect home prices to bottom until next year

Typically, home sales find a bottom prior to prices. As inventory is worked off, supply becomes more constricted and the power slowly shifts away from buyers and towards sellers. In the frenzy to be the first to accurately call a bottom, bold analysts are throwing caution, and the notion that one month does not a trend make, to the wind.

But rest assured, those same analysts will be calling this pop an anomaly when the data come around in another 30 days.

The month of March brought a degree of chaos to the financial markets, and indeed to the country as a whole, not seen in, well, months.

The stock market culminated another wave of selling with multi-decade lows, only to rebound in the strongest counter-trend rally since the bear market began last year. The AIG bonus scandal whipped the media, the public and Congress into a frenzy. General Motors lost its CEO at the hand of the President and we learned about Washington’s (latest) last ditch effort to save the financial system.

Meanwhile, the housing market gave investors and homeowners alike a ray of hope: A pop in February’s new and existing home sales. Optimistic pundits declared the housing market’s bottom just months away, while prices stubbornly maintained their distinctly southward trend.

Most economists use these broad trends to “predict” how far home prices will fall and when we’ll ultimately bottom. Data on the national level, however, just isn’t useful to most people. After all, whether you’re buying your first home or plunking down your savings on an investment property, the most important house is the one you’re buying, not some statistical collection of millions of unique properties.

This month’s Chart of the Month illustrates how thoughtful analysis can be used to identify trends the widely quoted data overlook. Prices for smaller homes on the Peninsula peaked first in late 2006 and have slid steadily ever since. Bigger houses, on the other hand, held up better but have fallen almost as far in half the time. This mirrors the trend that Prime mortgages are now souring faster than subprime.

In the coming months, we’ll be watching closely to see if any of these groupings bucks the prevailing trend — will the first group to crack be the first to bottom? Or will the high end’s fall be short and sweet?

In this month’s issue, check out:

The State of the Markets - 4/1/09
“Optimistic pundits declared the housing market’s bottom just months away, while prices stubbornly maintained their distinctly southward trend.”

By The Numbers: Housing Inventory
“Looking closely at historical months’ supply provides evidence that this measurement can actually be predictive for housing value trends, especially on a localized level.”

Zip Code Spotlight: Berkeley - 94703
“So is 94703 primed for a bigger drop or has it weathered the storm?”

House of the Month: 2 Bathrooms = Desirable in South San Francisco
“Since this property is one of the larger in the neighborhood and could be very desirable after some quality improvements, we expect some higher earners in the area to be interested in the home.”

Doing Your Real Estate Homework: Craigslist
“The intangibles may be difficult to quantify, but they are no less an important part of the rent vs. buy decision.”

By ANDREW JEFFERY

This post first appeared on Minyanville.

This week, 2 data points led optimistic market-watchers to declare the bottom in the housing is nigh: Indeed, one widely read trader-writer proclaimed, “The oversupply of housing that so plagues the market at present will be a figment of our memory a few months hence.”

The first: On Monday, the National Association of Realtors said existing home sales jumped 5.1% in February compared to the previous month, largely due to the high number of foreclosures being dumped onto the market by big banks like JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC).

While indicative of buyers gingerly dipping their toes back into the market, existing home sales are still down 13.4% from a year ago.

The second: On Wednesday, the Commerce Department released data on February new home sales which showed a similar trend: Transactions bounced 4.7% from January, but remain a whopping 41% below sales this time last year. Nevertheless, shares of beleaguered homebuilders like Centex (CTX) and Lennar (LEN) had stellar performances this week, capping a nearly 100% gain since the beginning of the month.

Prices, however, continue to slide for both existing and new homes. And while median (and average, for that matter) price data is skewed to the downside due to the mix of homes sold in a given period — in this case, more cheap houses than expensive ones — property values remain in a decidedly downward trend.

But since transactions typically find a bottom prior to prices, the number of people who believe prices should stabilize in the near future is growing.

Examining the data, unfortunately, tells a different story. Below is a chart produced by my firm, Cirios Real Estate, showing home prices and sales transactions in for the eastern part of the San Francisco Bay Area. The East Bay is a fairly representative sample of California housing markets: A little high-end, a little middle-class and a little low-rent all mixed in.

Click to enlarge

The red line shows average home prices, while the blue line shows sales transactions, as measured by their change from a year ago. Notice how, even as sales have spiked from the previous year, prices continue to plunge.

Two things jump out at me on this graph (aside from the massive increase in transactions and precipitous decline in prices):

First, transactions began to ramp up as prices moved down toward levels where borrowers could get government-backed loans to buy homes. That means Fannie Mae (FNM), Freddie Mac (FRE) and the FHA have financed a whole swath of homes in the past 18 months that are now severely underwater.

Second, transactions bottomed in September 2007, not long after the market peaked. 18 months have passed and prices have dropped more than 50% since that time.

With that in mind, the current “euphoria” over housing data — after a single month-over-month increase in sales, when year-over-year measures remain well behind even last year’s weak totals — seems a bit premature.

This is not to say prices will never stabilize, or that increased sales are a bad thing. In fact, the more sales we have, the quicker price discovery happens and the faster a true bottom can be found. Nor is this some proclamation that this part of California is a perfect proxy for home prices nationwide.

But given the backlog of foreclosed homes sitting on the books of the major American banks, continued price declines across the country and tight mortgage market conditions, calls for the devouring of supply by voracious home buyers causing an imminent housing bottom is downright premature.

To be sure, we may be one step closer to a housing bottom, but that’s one step on a very, very long path.