Many have argued that the U.S. housing recovery has been driven by investors, not traditional homebuyers.
After the housing bust, investors stepped in and over time absorbed inventory that helped drive up home prices.
But investors have also been accused of crowding out traditional homebuyers.
More recently, rising mortgage rates have helped keep potential homebuyers out of the market.
In a new report titled "US Housing: The price is becoming right," Societe Generale's Aneta Markowska writes that homebuyers have been sidelined largely due to price expectations, which she said are improving.
"Price expectations are a fundamental driver of housing demand, and homebuyers simply extrapolate from recent performance," writes Societe Generale's Aneta Markowska in a new report. Naturally, homebuyers didn't want to buy what they saw as a "depreciating asset."
Markowska points out that home price expectations are finally looking up. "We found that price expectations can be approximated by a simple six-quarter moving average of realized gains, lagged by one quarter. Measured this way, expectations crossed over to positive territory earlier this year, and are now approaching 5%."
As long as mortgage rates rise in the context of rising home price expectations, they won't destabilize housing demand.
Markowska argues that real mortgage rates are falling. Her assumption is that real mortgage rates will reach pre-crisis low levels of -4.7% in Q2 and Q3 2014.
In that context, she sees a handover from investors to traditional homebuyers in the final stage of healing in the housing market.
"To a deflationary dynamic? Our analysis suggests otherwise. If home price inflation is in fact sticky and if households do extrapolate from past price movements, then the positive momentum should continue. In this context, the heavy investor buying that occurred over the past 12 months should be viewed as a positive development. After all, it contributed to speedy inventory normalization and to the much-needed reversal of deflation in housing. In turn, those recent price gains should be changing perceptions about future price appreciation, and attracting would-be buyers back to the market.
"Lending standards should also ease gradually on the back of changing price perceptions and indeed early evidence suggests that some easing is already taking place. This is how we envision the handoff to traditional home buyers, which should mark the last and final stage of the healing process in housing."
Markowska thinks the conditions are already in place and the "price expectations have been transformed from deflationary to inflationary," she told Business Insider in an email.
"Now we need to see confirmation that the handoff from investor-driven market to homebuyer-driven market is in fact happening. I would expect this confirmation within the next 6 months," she said.
Here is Societe Generale's projection of real mortgage rates and housing demand:
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