Real Estate: Hot or Not?

(MoneyWatch)  Is real estate hot or not?

In the spring, home prices rose (when measured versus a year ago), according to a Fiserv analysis. Interest rates, meanwhile, are at such record low mortgage rates that many people who have refinanced within the past few years are refinancing again. In some major metro areas -- you know who you are, San Francisco -- it's still possible to have a price war on a cute family house.

And yet... We keep hearing about the foreclosure overhang, with hundreds of thousands of homes being repossessed by banks, which really have no interest in holding them. The minute the market begins to recover, the theory goes, those houses will all tumble onto the market, causing an oversupply and a second dip.

So whether real estate is hot or not today really depends on where you are. I've said it over and over again, five states are really getting kicked in the teeth: Arizona, California, Florida, Michigan, and Nevada. An msnbc.com analysis by John Schoen of Federal Housing Finance Agency data illustrates this point well: of the 25 metro areas with the biggest price declines from peak, 23 of them were in those states.

Yet even these data points aren't keeping the aggregate down. Picture a muffin baking -- the heavily hit micromarkets are burst bubbles, but those pockets of depression, dimples, whatever you want to call them -- aren't keeping the muffin top from rising overall.

I would argue that a so-so muffin is better than none, but we don't have the psychology of a recovery yet. After four quarters of economic growth, we're still not seeing headlines that the recession -- which in hindsight ended a year ago -- is over.

The pessimism is quite widespread. Every time the country experiences growth and recovery, it's spun as "below expectations." (Example from CNN talking about the second quarter GDP growth of 2.4%: "U.S. Recovery Sputters.")

If you're interested in real estate -- whether as an investor or as a homebuyer -- remember this: The current national pessimism is not what you should base your decisions on, anymore than you should have been carried away by the national optimism of 2006. Instead, study your micromarket, look at supply and demand there, and use that as a basis to begin.

Alison Rogers is the author of Diary of a Real Estate Rookie, a memoir with homebuying tips.

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