For a while now, I’ve been charting the heavy investment in a narrative of the housing market springing back to life. And if you look sideways at the data long enough, you can make that case. Jared Bernstein does a good job of that here. Indeed, we’re starting to see prices on distressed sales rising, albeit in a small way, up just 1% year-over-year. And the share of distressed sales as a percentage of the overall market are falling. Bernstein also shows some indications of a bottom, if not movement upward.

We need to look at the reason for some of these improvements in housing, which are happening at the same time as some bad indicators for the rest of the economy. I think the major thing boosting housing prices and market stability would be the reduction in the months-of-supply on the market. This has occurred over the past year. There are two factors here: shadow inventory, which consists of banks holding properties off the market; and things like this, which are pretty horrific to contemplate.

According to a report released today by the Urban Strategies Council, a nonprofit think tank, real estate investors have purchased – usually with cash – 42 percent of the 10,508 homes in Oakland that went into foreclosure between January 2007 and October 2011. Many of these investors are turning the homes into rental properties and charging rent that is significantly higher than the monthly mortgage payments many families would make if they purchased the homes.

“They are massive landlords in neighborhoods that historically have had high rates of homeownership, and very few people are aware of the investor activity that’s taking place under feet,” said Steve King, the organization’s housing and economic development coordinator.

The most prolific investor, the report said, was a company registered to Community Fund LLC, which bought 307 foreclosed homes and apartment buildings. The company is registered to Michael Marr, an Oakland real estate broker who declined to comment for this story. Community Fund paid, on average, $111,000 for a foreclosed home.

So the “stability” in the housing market comes from a new class of investor landlords buying up masses of properties on the cheap – one example in the piece shows a foreclosed borrower willing to pay $300,000 for a house than an investor took for $150,000 – and converting them into either rental units or development. I think this is really not a welcome scenario, no matter how it ameliorates the housing slump. We’re breeding a whole generation of slumlords, for one. These management companies will hold a ton of power over neighborhoods where they own a large chunk.

If homes get swept under in development, that’s arguably worse. Desley Brooks of the Oakland City Council describes it as investors “eating up our neighborhoods for profits.” It’s hard to argue with her.

In an interview, Brooks argued that families that would want to buy the foreclosed properties with conventional financing are being squeezed out by investors who can afford to pay cash. Real estate investors are “taking away the notion of buying into the American Dream,” she said.

Here’s the entire piece. I’m sure this is not limited to Oakland. In fact, the Administration is welcoming this with its REO-to-rental strategy, recruiting investors to buy up a bunch of foreclosed properties and rent them out. How this helps in the long run for the housing market – or especially the livability of communities – is hard for me to see.