04/20/2012 07:58 am ET

Housing Market Recovery, Despite Wall Street Claims, Still A Dream On Main Street

If the U.S. housing market is experiencing a nascent recovery, it hasn't yet reached Gwinnett County, just outside of Atlanta.

"Statistically, not much has changed," said Bill King, the director of a county program funded by a federal grant meant to stabilize communities hit hard during the housing crisis.

There were 1,725 foreclosure notices issued in March, which means the county is on pace to reach about 20,000 for the year -- not much different from recent years, King said. Just 90 building permits were issued last month, down from about 9,000 a month at the peak of the housing bubble in 2006. The average home value has plunged from about $200,000 to about $100,000, he said.

What King calls "pipe farms" still litter the county. These are partially built subdivisions, outfitted with roads and sewer pipes that poke out of the ground, that were abandoned before homes could be built.

King's story is a corrective to the steady stream of hopeful statements from bankers, economists and journalists suggesting that the housing market is improving. Many argue that it may already be helping the broader economic recovery, and say that it is on the verge of, or has possibly even passed, what JPMorgan Chase CEO Jamie Dimon recently called its "inflection point."

Yet while the bidding wars for Manhattan real estate may have started up again, in Gwinnett County and many other communities around the country, an often-heralded but seldom-seen housing recovery is still far from reality.

National housing data paints a similar picture. The National Association of Realtors on Thursday reported that pre-owned home sales fell 2.6 percent to a 4.48 million-unit annual pace in March. Economists expected sales to rise to a 4.61 million-unit pace, according to a Bloomberg survey. March's pace is still far below the bubble-era peak in 2005 of more than 7 million units per year, and it is even below the pace of nearly 5.5 million units seen during a false dawn for housing in late 2009.

Meanwhile, the new-home construction business remains near the bottom of the deepest hole it has ever seen, and it appears to be slipping backwards, with the number of homes being built declining for the second straight month in March. Groundbreaking on new home construction projects has rebounded to an annualized pace of about 650,000 units from a record low of fewer than 500,000 units back in 2009. But it is still a far cry from the record high of about 2.2 million units set at the peak of the housing bubble. And it is even well below 800,000 units per year, the level that had been the lowest-ever pace seen in prior recessions, dating back to the 1950s.

In reporting the decline in March home sales, the nation's realtors were, as always, optimistic that the housing rebound was just around the corner.

"A pent-up demand could burst forth from the improving economy," the trade association's chief economist Lawrence Yun said in a press release.

Yun and other economists rightly point out that all the conditions would seem to be right for a housing recovery. Mortgage rates are at record lows, based on Freddie Mac data going back to 1971. If you've got spotless credit you can get a 30-year mortgage for just 3.9 percent, according to Freddie Mac's latest survey data, released on Thursday.

Meanwhile, home prices are at levels not seen in nearly a decade, according to the S&P/Case-Shiller 20-City Home Price Index.

The trouble is that those prices just keep on falling. The NAR reported on Thursday that the median price of a pre-owned home was $163,800 in March, down from a median price of $166,000 in 2011 and well below the median price of $221,900 in 2006.

And prices may not rise again any time soon, considering the large supply of homes being held off the market until the smoke clears by banks and shellshocked homeowners. Nearly a third of pre-owned homes on the market are distressed properties such as short sales or foreclosures, according to the NAR.

Meanwhile, potential new homeowners are having a difficult time taking advantage of low mortgage rates and prices because banks are still holding tight to mortgage credit.

In recent days, Wells Fargo, JPMorgan Chase and other banks have reported big profits from their mortgage business in the first quarter. Wells Fargo had its best quarter for mortgages since 2009, and JPMorgan set a record for mortgage originations.

But the mortgage market is still shrinking, from its peak of about $10.6 trillion in early 2008, according to Federal Reserve data. Some big players like Bank of America are shrinking the size of their mortgage business -- BofA's mortgage originations were down a whopping 73 percent from a year ago, the Wall Street Journal reported on Thursday -- leaving more for other banks, such as Wells Fargo and JPMorgan.

The mortgage market is not so much coming back strong as it is settling gingerly onto different bank balance sheets. Home sales contracts are also being scuttled because of mortgage-application denials or because home-appraisal values come in lower than the agreed-upon sale prices.

"Our view is that sales will improve during the course of this year, but unless credit conditions loosen significantly, a takeoff will not take place," IHS Global Insight economists wrote in a note to clients on Thursday.

It would take a significant recovery to begin to lift the more than one in five U.S. homeowners who owe more on their home loan than their home is worth -- the great underwater masses -- into positive territory. And even then, what of homeowners in states like Nevada and Florida, where many homes have lost half their value?

In what counts as good news these days, the home next door to Carol McGregor in Orlando recently sold at a short sale for $310,000 -- more than $200,000 less than its original sale price.

Elsewhere on her street, which has just eight houses, the situation remains bleak, McGregor said. Some houses are abandoned, occupied at times by squatters. Other homeowners, like McGregor, who is 63, are holding on, even though they are deeply underwater, or in default on their payments, or both.

"What in the world are people going to do?" McGregor asked. "Everyone has lost their equity."

That includes McGregor and her husband, who lost their home in New Hampshire to foreclosure, and are in danger of losing this one, too.

They bought at the top of the market, in 2005 for $415,000, and invested $125,000 in improvements. Each month McGregor checks Zillow, the real estate website, and sees her house's estimated value dip lower and lower. Most recently, the value was pegged at $220,000.

Like thousands of other borrowers, McGregor thinks the note to her mortgage was not properly assigned, and therefore believes her servicer, Bank of America, doesn't have the legal right to foreclose.

Though deep in default, McGregor said she would simply not accept a short sale on her home. "Hell no, its my house," she said. "And then go find what? Moving costs a fortune. I'm going to stay and fight for as long as I can. This is a front line."