Meanwhile, the average rate on a 15-year fixed-rate mortgage rose to 4.43 percent, from 4.37 percent last week, according to Freddie Mac. Rates on five-year, adjustable-rate mortgages averaged 4.4 percent, up from 4.38 percent a week earlier. Rates on one-year, adjustable-rate mortgages inched down to 4.54 percent from 4.6 percent. Points across all four categories of mortgages have remained constant at around .6.

Regardless of which survey you prefer, they all indicate that rates are rising. The consensus among analysts and industry insiders, meanwhile, is that they will continue to rise. “At a congressional hearing on Tuesday, MBA Chief Economist Jay Brinkmann said that the ‘most benign estimates are for increases in the range of 20 to 30 basis points’ but that some estimates of potential increases ‘are several times those amounts.’ ” The main reason for the projected increase has nothing to do with changes in the balance between the supply and demand for mortgages. Rather, it is grounded in the expectation that the Fed is planning to turn off the spigot of cash that has already spewed more than $1 Trillion into the market.

Typically, an inverse relationship exists between mortgage rates and home prices, such that when rates rise, prices fall. This is primarily due to the fact that borrowers work backwards when buying a home by first determining the highest monthly payment they can afford. With higher rates, the interest portion of the payment rises at the expense of the equity payment, which translates into a decline in the price of a home one can afford.

It is not clear whether that relationship will hold this time around, if/when mortgage rates finally rise. Home prices have actually ticked up over the last two quarters, and it’s possible that this momentum will be sustained. Unfortunately, this is not the view espoused by the majority of analysts. Robert Shiller, of the eponymous Case-Shiller Index, has discerned through a recent survey that a bubble-mentality has gripped many of the buyers wading back into the market. Anecdotal evidence also suggests that speculators have returned to the markets, en masse.

First-time buyers make up the other large contingent. When the tax rebate underlying such sales expires this month, chances are that this class of buyers will disappear completely. Even if Congress extends the deadline of the program, it’s likely that it won’t have much of an effect, since most of the determined buyers have already entered the market. Investors have already come to understand this notion, which explains why housing stocks are down nearly 20% from the summer highs.

“I’m a firm prophet of the ‘W’ shaped recovery. Housing is going to go down again in the first quarter of 2010. The real healing won’t begin until all these nonperforming loans start trading in earnest, until we get these borrowers back on their feet,” expounded one analyst. In other words, housing prices can’t recover until the economy recovers. Put another way, the housing market won’t return to normalcy until the financial situations of long-term, non-speculative borrowers have likewise returned to normal.

The implication is clear: it’s still a buyer’s market. “Many potential sellers have a desperately weak hand. And many potential buyers lack enough equity in their current home to trade up.” In other words, sellers don’t have any leverage (in the figurative sense), and competition among buyers is limited, to non-existent. In fact, the decline means that many homeowners now have negative equity in their homes, and they are bound to be the most desperate from considering offers.

Some analysts are using these trends as a basis for encouraging investors/buyers to get back into the market. “If a real estate investor can pick up a property for 55 cents on the dollar, fix it up for another 15 cents on the dollar and sell it to a first time buyer for 80-85 cents on the dollar, everybody is happy. The investor perceives this is a good profit margin.” And some investors are doing just that. For several months now, there have been growing reports of bidding wars, featuring above-list price, all-cash offers for distressed properties.

In a recent article, one columnist even invoked the cliche about how real estate is a more sound investment than stocks/bonds because it is tangible. “Not all investments are the same. You can’t live in a stock certificate or gaze wistfully at a bond (at least most of us can’t). In what is still a time of tumult, there’s something deep inside us that finds the solidity of a home soothing. I think that explains why people moving out on the risk scale are focused more on real estate than on stocks or bonds.” Wasn’t this the attitude that led to the housing crisis in the first place?

It’s arguable a good time to by real estate, given the record decline in prices and mortgage rates that remain temptingly low. But the main rationale for buying should ultimately be based on utility, rather than capital appreciation.

Professor Linneman makes an important distinction in his predictions between single-family homes and multi-family homes: “Single-family housing starts have bottomed and will slowly pick up, [and] single-family housing prices in almost every market have bottomed….The multi-family side has fallen off a cliff. Multi-family starts are about a quarter of their historic norm.” In this regard, his analysis is firmly supported by the most recent data: “The Commerce Department said on Tuesday construction starts for single-family dwellings, the worst-hit part of the housing market, rose 1.7 percent from June to an annual rate of 490,000 units — the highest since October. But a 13.3 percent drop in new multifamily home projects pushed overall housing starts down 1 percent last month to an annual rate of 581,000 units after two months of gains.”

By Linneman’s own estimation, the national data is still pockmarked by significant regional discrepancies. The west – California, Nevada, and Arizona – remain battered, and “Construction of new housing in the Western states, including Arizona, fell 1.6 percent in July from the previous month, the second straight monthly decline, and was off 31.9 percent from a year earlier.”  In other words, it’s probably more useful to look at specific regional markets rather than focusing too much on the big picture.

Linneman is especially critical of the government, both for stoking the crisis and for its counterproductive efforts aimed at alleviating it: “We’ve had a government that for the last year has — under both the Bush administration with Paulson and the Obama administration with Geithner — leaped, then looked.” For better or worse, it looks like the government is going to remain active. Already, the government has moved to stimulate home ownershi, increase the stock of rental housing, limit foreclosures, and regulate the appraisal process. Good news for the housing market, even if Professor Linneman isn’t smiling.

But seriously, what special considerations should you take into account when hiring an agent, in light of the housing crisis? You should begin by scrutinizing your agent’s level of experience. During the bubble years, this was often a non-issue. Now, however, it’s vitally important that you make sure your agent is experienced in selling homes that are similar to yours. For example, has he/she sold properties in the same zip code and the same price bracket? If so, she should understand how and to whom to market your home.

One expert writes that quality homes aren’t being sold because, “Your agent isn’t getting the word out, either because the property isn’t listed properly on the multiple listing service or because he or she hasn’t posted it on Craigslist, Zillow or other online search engines that don’t feed directly from her MLS posting.” This also extends to understanding how best to present a home. “Having your home look picture-perfect online makes home buyers want to see how good it looks in person.” In terms of pricing, many sellers mistakenly assume that it’s better to price a home too high, but this could deter potential buyers. Your agent should be knowledgeable about prices for comparable homes, so that the price for your home can be set accordingly: “If your home looks great and is priced right, you’ll get traffic through the front door.”

Your agent should also understand the various financing strategies available to you. This applies especially to short-sales, lease purchase options, and wraparound mortgages. It may not be your agent that is ultimately responsible for structuring such a contract, but you should still prefer one who understands fluently how they work. From the buyer’s standpoint, you want an agent that can tell you what financing options are available to you, and if certain properties are excluded. For example, you may need to be reminded that if a property is too expensive, it won’t qualify for a conventional mortgage. Adds another expert, “If you are interviewing a real estate agent and he or she isn’t familiar with down payment assistance programs, you shouldn’t hire their services.”

Last but not least, you need to carefully negotiate the fees with your agent. An agent that charges too little may not be qualified, but then again the same could be said for an agent that charges too much. In order to attract the most buyers, “You need to make sure your agent is splitting the commission equally with whoever brings the buyer. Some listing agents will take 60 percent of the commission instead of sharing it 50-50, which won’t help you.”

Let’s zoom in on some specific data points: “The Standard & Poor’s/Case-Shiller price index, a closely watched gauge, showed that single-family-home prices rose 0.5 percent from April to May, the first monthly increase since 2006…The federal government reported an 11 percent rise in new-home sales from May to June, the largest monthly gain in nine years. Sales of previously owned homes jumped for the third straight month, up 3.6 percent in June.” Meanwhile, “The median sales price was $206,200, down from $234,300 a year and $219,000 from May.”

At face value, these statistics seem to portray a market that has entered the recovery stage, but they should be interpreted in context. First of all, “Home sales quite often jump in June, the height of the spring selling season.” This June was particularly bountiful because of the federal government, which is offering an $8,000 tax credit for first time buyers, and implemented a de facto moratorium on foreclosures.

However, given the seasonality of the housing market and the fact that both of these government programs are slated to expire soon, “It makes more sense to compare them [home sales] with the same month a year ago. That comparison is less kind — sales were down 21.3% from June of 2008. Seasonally unadjusted data show a total of 36,000 new homes were sold last month, the lowest June total since 1982.” It should also be pointed out that the data is derived from a survey – rather than from actual numbers- and carries a margin of error, such that the true figure could very well be negative.

There are also significant regional disparities contained in these numbers. “Sales were strongest in the Midwest, where they jumped 43 percent from May’s total. Sales climbed 29 percent in the Northeast and 23 percent in the West. They declined slightly in the South.” In California, Florida, Nevada, and Arizona, prices continue to fall, and foreclosure rates are rising.

The high-end market, meanwhile, continues to tank, due mainly to a delayed bursting of the bubble and changes in lending standards. “The supply of unsold homes priced above $750,000 swelled to around 17 months in June, up from a 14.5-month backlog one year ago. A recent forecast by analysts at J.P. Morgan Chase & Co. said it would take until at least 2012 for the expensive-home market to recover and that peak-to-trough declines could surpass 60%, compared to 40% for the rest of the market.”

It’s quite obvious that from an historical standpoint, then, the housing market remains quite depressed. But what about the future? “ ‘The freefall is over,’ says Dean Baker of the Center for Economic and Policy Research.” Warren Buffet agrees: “Most of the problems in the housing market will be over in 18 months or something like that.” Alan Greenspan, however, thinks that “Home prices had stabilized only temporarily. ‘It is possible that could get a second wave down.’ ” Other analysts point out that for as long as the overall economy – specifically the employment situation – remains weak, the housing market will fail to recover. In addition, should interest rates rise suddenly and/or another wave of foreclosed properties hit the market, the market could certainly trend downward.

In a nutshell, “The new rule, which took effect May 1, forbids brokers from hiring their own appraisers and requires middlemen — called appraisal management companies — to choose them instead. The change was intended [to] reduce the possibility that brokers and lenders would pressure appraisers to raise house values to match sale prices, regardless of the true value. It affects all loans backed by Fannie Mae and Freddie Mac.”

While the Appraisal Management Companies have benefited by standing in the middle of the process and collecting fees, nearly all other parties are suffering. Homeowners have witnessed rising appraisal costs – in some cases 30% higher than before. In addition, the appraisal fee must now be paid upfront (instead of rolled into the mortgage), and can only be used in association with one mortgage application. “Previously, the broker owned [the appraisal]. That has changed. Now, it’s in the name of the actual lender.”

Appraisers, meanwhile, are equally frustrated, since the new system “effectively commoditized their services overnight, undermining the value of specialization, experience and reputation. Theirs is now one name on a long list that receives seemingly random assignments, often in regions they don’t focus on and for less money than they used to earn.”

This alleged failure to match the right appraisers with appropriate assignments is being blamed for low (some would say “inaccurate”) appraisals. Recent news reports have been full of anecdotal stories of both buyers and sellers that watched deals fall apart at the last minute because the appraisal came in well below the sale price. In some cases, “victims” were able to search out an amenable appraiser willing to certify the sale price, while in other situations, they were forced to go back to the drawing board.

According to an “online poll of industry professionals, about two-thirds of respondents said they had had at least one appraisal come in under the purchase price since the new rules took effect, with the average difference being more than $13,000. And 90 percent of respondents said they had lost at least one transaction.” The National Association of Realtors conducted a similar survey, and found that “37 percent experienced at least one lost sale as a result of the new Home Valuation Code of Conduct, with seven out of 10 reporting an increased use of out-of-area appraisers. Seventy percent of NAR appraiser members said consumers were paying higher fees, while 85 percent report a perceived reduction in appraisal quality.”

Of course the flip-side of the debate is that the new system is working according to plan (minus the higher fees), with low appraisals providing a necessary check on real estate prices, to keep them from rising too high too fast. One industry insider notes that “40 percent of the market consists of distressed properties going at fire sale prices.’The real reason for the appraisals coming in “low” has been that the market is still in turmoil,” he said. “Home sales have not yet rebounded. Home prices are still in many areas still falling.’ ”

This counter argument has not stopped people from challenging the rule change. Many appraisers have “signed a petition (www.hvccpetition.com) to try to repeal the rule — a cause taken up by U.S. Rep. Gary Miller, a Southern California Republican who is co-sponsoring legislation asking for an 18-month moratorium.” They argue that while seemingly good-intentioned, this rule will succeed only in stymieing the nascent recovery in the housing market, if allowed to stand. With such vehemence (not to mention lobbyists) on both sides of this issue, it will probably be a while before any further action is taken. In the mean time, the best you can do is solicit a fresh appraisal if you’re not satisfied with the first one.

According to a report by RealtyTrac, “1.5 million U.S. owners have been told they are in danger of losing their homes. The company Thursday said one in every 84 households got at least one foreclosure notice during the first six months of the year, a new record.” As a result, “The existing home market is still vastly oversupplied, and we continue to be inundated with an influx of distressed and foreclosed properties,” observes another analyst.

Unfortunately – at least from the standpoint of “genuine” buyers – many of these properties are being snatched up by speculators and institutional investors, who have finally found a corner of the real estate market that remains buoyant. “Vornado Realty Trust, one of the biggest real-estate investment trusts in the U.S.,” made headlines when it announced its intention to “raise $1 billion for a private-equity fund to invest in the wave of distressed properties expected to hit in the next few years.” According to marketing materials, the fund is aiming for a 20% annualized return on its investment, which is in indication of just how excited people are about the market for foreclosed properties. Distressed commercial real estate, meanwhile, is nearing $100 Billion and growing rapidly.

Other investors, meanwhile, are hoping to benefit indirectly from a new federal program “designed to stabilize and revitalize neighborhoods ravaged by foreclosures and abandonment.” Across the country, “Out-of-state speculators continue to swoop into these neighborhoods, plucking properties they might fix up and rent out. Then again, they might try to flip them or simply sit on them, perhaps fouling any attempt to stabilize these areas.” These properties are being snatched up for eye-poppingly low prices- under $10,000.

Real estate agents are also getting into the game. A just-announced arrangement “will give local RE/MAX agents…access to RealtyTrac’s database of properties that are in some state of foreclosure — including properties in default, homes scheduled for public foreclosure auction and bank-owned properties…Going forward, prospective homebuyers visiting remax.com also will be able to search RealtyTrac’s database.” While ostensibly affording both buyers and sellers of foreclosed homes more opportunities, a byproduct of this arrangement is that speculators will also have an easier time spotting such properties.

Investors have another advantage – beside deep pockets – over regular homeowners; they almost always pay cash. Until the credit crisis is fully resolved and banks once again trust each others’ credit, it seems speculators will have the upper hand.

A recent paper by a former vice president of the New York Federal Reserve Bank, for example, challenges this consensus and argues instead that changes in labor productivity was a primary impetus behind the rise in housing prices. “Consumers thought that because they were working harder starting in the mid-1990s, their paychecks would follow suit, encouraging them to pay high prices for housing, the study found.” This naive optimism was evidently shared by the banks, which were quick to extend credit with fewer strings attached. By extension, the bursting of the housing bubble could be theoretically be attributed to the fact that incomes ultimately did not keep pace with rising productivity.

The paper attempts to preempt its critics by asserting that, Productivity growth is especially well suited for a model of aggregate house prices. Many of the other fundamentals that affect housing prices—demographic factors, density (the availability of land per capita), interest rates, taxes, and local government regulations affecting new construction—can vary widely across regions…Productivity growth, by contrast…exhibits precisely the kinds of unexpected but long-lasting changes that have the potential to influence the forward-looking price of an asset like housing.”

Perhaps the key to predicting a housing recovery, then, lies in understanding not only expectations for productivity growth, but also the extent to which changes in productivity will flow through to paychecks. Based on the chart below, the latter is somewhat irrelevant since forecasts for productivity growth have fallen dramatically since the recession began.

Robert Shiller, the Yale economist and one of the creators of the eponymous Case-Shiller Housing Index, is also looking towards the future: “There could be another bubble in housing, once the excess inventory is worked off. ‘This is not my more probable scenario [but] people have gotten very speculative in their attitudes toward housing.’ ” In his mind, then, it’s neither a question of productivity nor of income expectations, but instead of price expectations. In other words, if people believe housing prices are undervalued, prices will rise simply by virtue of this belief. Granted, this notion of (under)value must be rooted in economics, but the point stands that if for whatever reason people believe prices will rise, and have the ability (i.e. credit) to exploit this belief, then the rise in prices will become self-fulfilling.

Prior to the collapse of the bubble, housing prices had risen so fast (especially compared to stagnating income) that it had become difficult for many moderate and low-income people to maintain their standard of living. According the US Department of Housing and Urban Development (HUD), “The economic expansion of the 1990s obscured certain trends and statistics that point to an increased, not decreased, need for affordable housing…and a family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two-bedroom apartment anywhere in the United States.”

One would think that the bursting of the real estate bubble would have alleviated this problem. In actuality, it made the problem worse. This is mainly because the drop in housing prices has been accompanied by a greater decline in incomes, wrought by the economic recession. “Families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care. An estimated 12 million renter and homeowner households now pay more then 50 percent of their annual incomes for housing.”

In addition, mortgage default and subsequent foreclosure on rental properties is disproportionately affecting the poor. According to Harvard University’s The State of the Nation’s Housing 2009: “Tenant evictions from small rental properties in the foreclosure process are now a major concern, and all the more so because some landlords reportedly continued to collect rent even as they fell behind on their mortgages and left tenants unaware of the pending foreclosure.” Finally, the financing for new affordable housing units “was threatened when the recession killed the market for low-income housing tax credits, which are the nation’s main funding method for low-income housing development.”

Thankfully, this is starting to change. “U.S. Housing and Urban Development Secretary Shaun Donovan last week released $2.25 billion in stimulus money to jump start as many as 1,000 stalled affordable housing projects across the nation.” The money will come in the form of grants, and must be spent by 2012. HUD is also working outside of the stimulus plan to increase the stock of affordable housing: Its Self-help Homeownership Opportunity Program (SHOP), “provides funds for non-profit organizations to purchase home sites and develop or improve the infrastructure needed to set the stage for sweat equity and volunteer-based homeownership programs for low-income families.” In addition, “The Homeownership Zone program allows communities to reclaim vacant and blighted properties, increase homeownership, and promote economic revitalization by creating entire neighborhoods of new, single-family homes.”

Of course, obstacles remain. The demand for affordable housing will most likely outstrip supply for the foreseeable future. Still, the measures described above are expected to result in an immediate boost to supply, with the potential to help those most in need weather the downturn and get back on their feet.

The only way to reconcile price declines with low inventory is to understand that the market is being manipulated. According to a recent report by Glen Kelman, CEO of Redfin, “The market has become distorted so much that it is ridiculous to pretend that it is a free market. It is instead an oligarchy, controlled by the government and the banks to limit price drops, which in turn frustrates consumers and limits price recoveries.” In other words, despite the “weak” market, banks are working to reduce competition, such that you would think we were in the middle of another bubble. “Banks selling a home don’t trust one another’s credit. They reject appraisals for a price that a buyer is willing to pay. They’re slow to put homes on the market, but aggressive about pricing other sellers out of the market, even as buyers are frantic to strike before the tax credit expires.”

According to Kelman, there are a few key ways in which the market is currently being distorted. First of all, banks are deliberately hoarding inventory, so as to avoid recognizing losses on foreclosed properties for as long as possible. In addition, potential sellers are also neglecting to put their homes on their market, knowing full well that they can’t compete with the banks on price. As a result, “Banks have effectively become the sole supplier of homes for sale in many distressed areas…Supply and demand have been slow to find a new balance because there is an enormous backlog of homes that could be sold, and most are not being put on the market.”

Secondly, real estate agents may also be hoarding listings, in order to ‘double-dip’ on the sale. “Several eagle-eyed consumers recently noticed that listing agents are accepting an offer on a listing literally one minute after it debuts on the the market.” The likely explanation for this phenomenon is that selling agents are waiting until a buyer they represent comes along, before they are willing to close the deal. In this way, they can collect a commission on both ends of the transaction.

Third, “Banks refuse to accept what the market tells them is a fair price for a home.” The concern is that homes will appraise for a lower value down the road, leaving the bank to eat the difference. “Rather than risking that a loan will fail because of the appraisal, the banks take a lower offer from an all-cash buyer. What this means is that the market establishes a price for the property and the banks on both sides of the deal — the one selling the property, and the other lending money to a would-be buyer — refuse to believe it.”

According to Redkin, the solution to this problem is for the government to “require that banks receiving federal assistance put homes up for sale within nine months of taking ownership or account for the current value of the homes on their balance sheets, or have the government extend this year’s $8,000 first-time home buyer tax credit to allow time for more listings to hit the market.” In addition, conflicts of interest with listing agents must be eliminated, in order to allow competitive bidding. Ultimately, these inconsistencies will probably iron themselves out, once the market recovers.