A popular investing aphorism states that housing markets must climb a wall of worry in order to advance. If anyone has had more worries than most in recent years, it's the homebuilders. Over the past two months though, they seem to be worrying a little less. The National Association of Homebuilders reported its housing market index – a measure of industry confidence – rose three points to 22 last month, posting its highest reading since August 2007.

Homebuilders are still far from euphoria: readings below 50 indicate negative sentiment about the housing market. The last time the NAHB's index was above 50 was in April 2006, and we saw how the ensuing four years played out. Perhaps the fact that homebuilders remain somewhat guarded bodes well for the industry's future. Still, many homebuilders are expecting improved sales and home buyer traffic in coming months despite the end of homebuyer tax incentives.

Continued price stabilization is helping to lift spirits as well. National home prices increased 1.7 percent in March compared to the same year-ago period, marking the second month of year-over-year increases, according to CoreLogic's home price index. Distressed sales continue to cloud the outlook, though CoreLogic noted that the longer-term forecast remains positive, with prices expected to rise nationally another 2.7 percent over the next 12 months.

Stabilizing and improving prices are also contributing factors to the surge in housing starts, which rose 5.8 percent to an 18-month high of 672,000 units in April. Of course, buyers eager for federal tax credits are another contributing factor, which has some pundits concerned about a precipitous drop in sales in coming months. Their concerns are not unfounded. Permits dropped 11.5 percent, which indicates many builders remain cautious (hence, the 22 reading of the latest NAHB confidence index).

The good news is that continued economic growth is more likely than not. The Federal Reserve expects GDP to grow by roughly 3.5 percent this year, up from its 3.1 percent forecast in January. Meanwhile, unemployment is expected to drop to the low 9-percent range. As the economy and employment recover, the Fed expects inflation to remain subdued.

Real Estate Investors Beware

As a fellow real estate investor, I was ecstatic to see the announcement from HUD Asst. Secretary David Stearns on January 15, 2010 that Section 203.37a(b)(2) was waived for a period of one year - through January 31, 2011. 

The reason behind this decision was simple.  The department of Housing and Urban Development  realized the significant negative economic impact many uninhabitable foreclosed homes have had on the real estate market.  By allowing the waiver of the 90-day seasoning rule, the inventory of these properties would surely decrease as investors are able to rehab and turn these homes in a reasonable amount of time.

Unfortunately the secondary mortgage market is not required to adhere to HUD and FHA "recommendations", and they aren't buying.  At the onset, I found very few lenders who would adhere or accept, either or both stipulations for FHA loans.  I experienced denials from Well Fargo, Bank of America, and SunTrust.  I figured there was a learning curve and they would come around, but now three months into this, the "bigs" still aren’t buying. 

Home buyers looking for a nice rehab property while utilizing an FHA loan are finding more success using local lenders and mortgage brokers.  These people have less bureaucracy and are more apt make the right common sense decisions.

If you are an investor it is critical to educate yourself, and use an educated real estate agent to guide prospects to successful financing.  There is nothing worse than going under contract (taking your listing off the market) for weeks only to find a finance contingency implemented.

The percentage of Utah homes with underwater mortgages remained at 21.1 percent in this year's first quarter, about the same level as in the fourth quarter, according to a new report by CoreLogic.

In Salt Lake City, 20 percent or 45,125 residential mortgages were considered to be in "negative equity," meaning that borrowers owe more on their mortgage than their homes are worth. In addition, 6.2 percent or 14,046 mortgages were in near negative equity in Salt Lake City.

Nationally, 23.7 percent of all residential properties with mortgages were in negative equity in the first quarter.

Nevada (70 percent), Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (34 percent) posted the highest negative equity rates of all states.

"The typical underwater borrower is likely to regain their lost equity over the next five to seven years," according to Mark Fleming, chief economist with CoreLogic.