Across recent months we have seen rising existing home sales and a decline in the number of months of unsold inventory. More existing homes are being bought and sold and our inventory stands at just over 6 months worth of sales at the present rate -- so it could be and has been worse in the housing markets. Credit for some improvement is due. 

However, we have seen celebration and planning for a return to normalcy get significantly out in front of economic fundamentals -- again. We continue to see underwhelming sales levels, falling median prices and huge market share for distressed properties. The middle class continues to lose its castles. Growing communities of renters and investment buyers define single-family real estate. This looks like a recovery -- long-delayed and mild because the middle class is largely left out of it.  

Figure 1 below illustrates the gain in existing home sales. It's very clear that we are seeing improvement. It's equally clear we are seeing very limited gains off of very low levels. 

We saw 4.57 million sales in January 2012 up from 4.38 million in a downwardly revised December 2011. This is a 4 percent increase. The “strength” must be judged in the context of mortgage rates at historic lows and below 4 percent. Over a third of sales, 35 percent, involve distressed properties. 

The National Association of Realtors (NAR) defines distressed properties as foreclosures and short sales. In January 2012, 22 percent of sales were foreclosures and 13 percent of sales were short sales. 

All of this is to say that over a third of sales came from folks who could not keep or afford their homes. A significant portion of the middle class cannot afford to keep or get into historically middle class housing. In addition, some folks who can afford the homes simply don’t see the value in taking the plunge and taking on all that debt and risk.

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Inability and unwillingness to buy continue despite pressures and investigations into foreclosure processes, hyper-low interest rates and falling unemployment. Nearly a quarter of recent sales were bank-owned properties. Households remain in poor shape and homes remain out of reach or undesirable investments for many lenders and borrowers. 

Figure 1 places the recent rise in sales in the context of the low sale environment of recent years.

Figure 1 Existing Home Sales. National Association of Realtors.

Subdued, if less subdued, sales were achieved through investor purchase, falling home prices and ultra-low interest rates. We saw median home prices, as reported by the National Association of Relators, fall from $162,200 to $154,700 between December 2011 and January 2012. A $7500 median home price decline, 5 percent, facilitated a 4 percent increase in home sales. 

It is a 4 percent, sub-4 percent, 5 percent market. By this this I mean, 4 percent sales gain on sub-4 percent mortgage rate with a 5 percent decline in median price. Figure 2 below illustrates the recent data on median home price. 

It is clear we are at a low point despite historically low interest rates. Today’s 30-year fixed mortgage rate is less than half the average rate over the last 50 years. Investors account for nearly a quarter of the total buying, 23 percent, in January 2012. Price sensitive buyers are entering to purchase for investment. Thirty-one percent of existing homes were purchased with cash. This further suggests a shift in the purchase behavior of homebuyers. Investors are selectively picking through the inexpensive wreckage of house crisis, 4+ plus years into the process.

Figure 2 Existing Home Sales. National Association of Realtors.

The data strongly suggests further separation of the majority of Americans from opportunity. We can see continued distress in the forms of foreclosures, short sales and falling prices. We see opportunity for higher income communities that are accelerating the process of turning former homeowners and folks who would have been homeowners in pervious eras, into renters. The January 2012 housing data tell a story of opportunity for high income households and investors and continued weakness for all others. 

Figure 3 Federal Reserve Data. Z1 Table B100 Table

Another view into the turmoil and shift in housing comes from falling ownership levels. There are several ways to measure this slide. Figure 3 above looks at how much of their homes the average American “homeowner” actually owns. 

The pattern is clear. Fairly stubborn debt levels and rapidly declining home prices have produced a seismic shift over the past years. Americans own less of the homes that they “own” than many think. This should be seen as the slipping away of a core prospect of the American dream. Wages and savings rates do not support historical levels of homeownership. This takes many forms. 

Figure 3 displays one form, more owing and less owning for those who have bought a home. We see the average family owning less of their homes and we also see fewer families owning homes. There is every indication that this trend will continue.

Figure 4 US Census Home Ownership Rates 1980-2011

Figure 4 offers another window into the process. We own less of our homes and fewer of us own homes at all. Early 21 Century gains in home ownership, once widely touted, have been erased in a speedy a brutal process. How ownership levels have slipped back to levels seen last in the closing years of the last decade. This is proceeding despite recent extensions in the length of foreclosure processes and continued interest rate and refinancing intervention.

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Housing continues to tell the story of a beleaguered middle class. The American middle class was literally built around home ownership. The January housing numbers continue to tell a story of slipping attainment for the pressured middle. Recent numbers are better than those we recorded during the depth of the crisis, but we're nowhere near reversing the process of declining middle class affluence. Housing continues to tell a sad story.

Max Wolff is Chief Economist for GreenCrest Capital and teaches economics at the New School University Graduate Program in International Affairs. His work can be seen on Bloomberg, Reuters, NPR, BBC, The Huffington Post, The Wall Street Journal and other outlets.

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