After several years of housing depreciation the one thing that seems to be on everyone’s mind is, When will this []

After several years of housing depreciation the one thing that seems to be on everyone’s mind is, When will this housing recession end?, and When will my house start gaining value again?. This eagerness by homeowners to get the housing market back on track has spawned several misconceptions about the housing market.

To help homeowners set reasonable expectations for the housing market in the coming years, Zillow’s Chief Economist, Dr. Stan Humphries presented “Four Myths of the Housing Market” alongside Doug Duncan, chief economist for Fannie Mae and Bob Bach, chief economist for Grubb & Ellis at the recent National Association of Real Estate Editors (NAREE) conference in Austin, TX.

Four Myths of the Housing Market

1. The housing recession is over

While home sales have reached a bottom, home values have not, and likely will not bottom out until Q3 of 2010. Zillow’s April data shows that nationally, home values fell 4.1 percent year-over-year, 1.1 percent quarter-over-quarter and 0.4 percent month-over-month.

2. We’ll see a return to historical appreciation rates after we hit a bottom in prices

Not true. The housing bottom is likely to be long and flat, and it is highly likely that we will not return to historical appreciation rates for another three to five years. There are several contributing factors:

• Shadow Inventory: There are approximately five million homes that are 90 days+ delinquent or currently in foreclosure according to both the Mortgage Bankers Association and Lender Processing Services.

• Sidelined Sellers: There are 5.3 million homeowners waiting on the sidelines to sell once the market starts to show positive signs, according to Zillow’s Q1 Homeowner Confidence Survey .

• Negative Equity: With 23.3 percent of single-family homes with mortgages currently in negative equity (up from 21.4 percent in Q4 2009) and unemployment forecasted to stay at elevated levels, well continue to see high rates of foreclosure.  Moreover, negative equity is suppressing housing demand since homeowners trapped in their current homes because of underwater mortgages cant go buy new homes.

• Mortgage Rates: The good news is that current mortgages rates are at historic lows and theyve defied, thus far, predictions that they will climb (thanks to European sovereign debt woes).  Long-term though, they will be higher than they are now and that will impact housing demand.

3. The worst of the foreclosure crisis is over

The rate of foreclosures is actually INCREASING nationally. According to Zillow’s April data 1.1 out of every 1,000 homes was foreclosed upon in April. In some of the harder hit metros in California, Arizona and Nevada, 3-4 out of every 1,000 homes were foreclosed upon in April. Foreclosure rates will likely stay elevated so long as rates of negative equity and unemployment remain high.

4. The homebuyer tax credits saved our bacon

The homebuyer tax credits did stimulate sales, especially during the first wave of the credit in 2009 when it was exclusive to first-time homebuyers. During its first incarnation, the tax credit likely did even mint new incremental sales that wouldnt have occurred otherwise (see our analysis here ).  In its second incarnation, however, most stimulated demand was likely pulled forward from future months versus being incremental new sales that would not have occurred otherwise.  Historically low mortgage rates, dramatically increased housing affordability, and substantially ramped up lending from the Federal Housing Administration have been enormous factors in getting sales moving again.  The first round of tax credits may have created a shift in market psychology that was helpful to the market but, arguably, these other factors alone might have pushed sales up from their early 2009 low.