Home purchases have picked up the past few weeks in Phoenix and Las Vegas, a sign that some of the hardest-hit housing markets may have hit bottom.
Lenders say there has been a flurry of buying activity for homes priced at $200,000 or less, mainly distressed properties, including foreclosures.
But a full-blown recovery is still hampered by the dearth of move-up homebuyers, the scads of homeowners with negative equity, and a massive inventory of properties in foreclosure that have not yet been put up for sale.
"The real estate market is more fragmented than ever before," said Brian Yampolsky, owner of Orion Mortgage Corp. in Phoenix. "Not only is Arizona different from other states but there are sub-markets within our market that are reacting differently."
Higher-priced homes still have plenty of room to fall further, said Alex Villacorta, director of research and analytics at Clear Capital.com Inc., a Truckee, Calif., data provider.
"Low-end distressed properties are selling," said Villacorta. "When you look at the higher end, there may be another wave of declines because higher-priced homes have not fallen nearly as much as lower-priced homes."
Banks and mortgage lenders are concerned that a further drop in home prices could encourage more marginal homeowners to walk away from their homes. Such a scenario would create a vicious cycle, in which more foreclosed properties flood the market, further depressing prices.
"Negative equity is the biggest problem we're faced with right now," said John Frangoulis, president of Realty Financial Network Inc., a Walnut Creek, Calif., mortgage brokerage. "Why would a consumer keep paying $500,000 on a loan if their house is only worth $250,000?"
Analysts at JPMorgan Securities LLC are predicting another drop in home prices of 4% to 5% through next year. They wrote in a recent report that with mortgage applications at depressed levels "the outlook for future sales is gloomy."
