The recovery in home sales and prices is taking shape, but will it further solidify, even in the hardest hit markets?

A Home Value Forecast report from Pro Teck Valuation Services and Collateral Analytics expressed the idea that the recovery will continue in hard-hit markets such as Sacramento, Phoenix, Las Vegas, and Riverside-San Bernardino “because prices are still lower than fundamental market drivers” such as employment.

“Home Value Forecast has been pointing out for the past year that most of the fundamental factors for a recovery in home sales activity and prices are falling in place,” said Tom O’Grady, CEO of Pro Teck. “However, the residential real estate market has always had a strong psychological component driven by consumer confidence.”

The report discussed the role of consumer sentiment in the residential market and explained how “swings” in sentiment can influence home prices.

For example, O’Grady says that in periods of “great exuberance,” swings can raise prices above sustainable values as seen during the recent bubble, or during times of extreme pessimism, swings can move prices below intrinsic values.

“When home prices are rising, home buyers assume that they will keep rising, and when prices are declining, buyers assume that they will continue declining,” O’Grady explained.

He further added rising prices “also increase homeowner net worth and encourage those buyers who have been sitting on the fence to purchase. These new buyers lead to higher turnover rates, reinforcing the existing trend.”

The December report included a ranking of the top 10 best and worst performing metros based on real estate market indicators, such as sales and listing activity and prices, inventory, days on market, and foreclosure and REO activity.

Michael Sklarz of Principal of Collateral Analytics, noted three of the top ten metros are in Texas and another three in California. As for the bottom-ranked metros, Sklarz observed most have double-digit months of remaining housing inventory.

Top 10 markets
1. Santa Ana-Anaheim-Irvine
2. Dallas-Plano-Irving
3. Bethesda-Rockville-Frederick, Maryland
4. Austin-Round Rock-San Marcos
5. Seattle-Bellevue-Everett
6. Oxnard-Thousand Oaks-Ventura, California
7. Salt Lake City
8. Minneapolis-St. Paul-Bloomington
9. Los Angeles-Long Beach-Glendale
10. Houston-Sugar Land-Baytown

Bottom 10 markets

1. Little Rock-North Little Rock-Conway
2. Virginia-Norfolk-Newport News
3. Newark-Union
4. Cleveland-Elyria-Mentor, Ohio
5. Edison, New Jersey
6. Knoxville
7. New York-White Plains-Wayne
8. New Haven-Milford, Connecticut
9. New Orleans-Metairie-Kenner
10. Greenville-Mauldin-Easley, South Carolina