CoreLogic's March edition of The Market Pulse, produced in a magazine format, has two articles that caught our attention.  The first, "Keep on Trucking," contains one of the most positive takes on the economy and the role of housing that we have seen in a long time.  The second article reviews and provides support for one theory of what is holding back any housing rebound in some metropolitan areas.

First the economy.  CoreLogic says that a positive trend is clearly emerging as good news continues.  The GDP was expanding at a 3 percent rate in the fourth quarter of 2011, defying some economic expectations that growth could slip below "stall speed, and CoreLogic is looking for 2 percent growth in early 2012 "despite the buffeting blows of a slowing European economy and increasing U.S. fiscal constraints."

Initially business investment in equipment and software were driving the economic expansion as businesses substituted labor for capital as they cut costs and sought greater efficiencies.  Now investment in equipment and software and productive growth are all falling signaling the need to create more jobs.  And private sector jobs are being created - 253,000 in January - which, in turn is leading to increased consumer confidence.  And that brings the report to housing.

The report says that one of the biggest concerns for the housing market is the lack of demand which is no surprise given how many people were hurt by the housing market in the past five years.  This, coupled with the economic situation has led to uncertainty which leads to inaction, thus many potential buyers are voluntarily not participating in the housing market while many others are shut out because of insufficient equity in their existing homes.  As labor markets grow and confidence returns demand will as well.

CoreLogic ticks off some key points.

• While sales of both new and existing homes are ragged, they are trending up and inventories are dropping. The supply of existing homes dropped to 6.1 months in December, the lowest point since March 2005. "Research has shown that four to six months home supply is a healthy level of inventory that puts neither upward nor downward pressure on prices, so this is a good sign for further stabilization in 2012."
• Mortgage originations in October 2011 increased to $108 billion, a significant improvement over the low point of $60 billion the previous May. Much of the origination activity is due to mortgage refinancing which made up 74 percent of originations. The long run average share of refinance activity since the beginning of the millennium is 55 percent, due largely to low-rate environments throughout the decade and the high level of equity extraction during the housing boom. Year to date through October 2011 originations topped $784 billion and at the current rate is expected to be right around one trillion for the year.
• The mortgage market, while still small by recent historic standards, is slowly growing on the strength of refinance activity. (Editor's note: this report appears to be dealing with data as of mid-February). "While this activity may fade as we move through 2012 if interest rates rise, it may well be replaced by purchase loan volume from increased home sales."

The second article in The Market Pulse is "Unlikely Company - What do Denver, Detroit and Miami Have in Common?" The answer is they rank one, two, and three on a list of most improved markets as ranked by home sales, home prices, and delinquencies.  What they also have in common is that they do not appear on the list of the markets with the most clogged foreclosure pipelines.

By analyzing the ratio of properties in foreclosure versus properties in lender inventories (REO) CoreLogic says one can see how foreclosure congestion is preventing improvement in many markets.  Albany, for example, is number 77 (out of 100) on the improved markets list and is number one in congestion with 66 properties in the process of foreclosure for each one in REO.  The three least improved markets are in the top ten foreclosure congested markets and every MSA in the top ten of that list was in the bottom 50 on the improved list.

In analyzing the top and bottom markets CoreLogic said it becomes clear that foreclosure laws matter.  Nine of the ten least improved markets are in judicial foreclosure states while eight of the top ten improved markets are among the least foreclosure congested.

CoreLogic looked at the performance of several counties that are in the same metropolitan area but are in different states and subject to different foreclosure laws.  "The takeaway is clear; even while adjusting for the same metropolitan geography   (which is a control for the local economy, demographic and housing market dynamics) counties in non-judicial states are able to clear and reduce the stock of distressed properties more quickly than counties in judicial states, even if they are in the same metropolitan areas."

Where pipelines are congested many properties are prevented from being cleared out which holds back liquidation of these properties into REO and then as distressed sales.  While distressed sales are negative for home prices and the market in the short term, the shadow they cast on the housing market prevents house prices from improving and creates an expectation of lower prices going forward.  'Clearing the foreclosure pipeline can help markets recover in the long run."