The “housing is back” narrative got another boost with a story in the Wall street Journal that simultaneously makes an unequivocal statement about home prices, and then acknowledges wild variance in the data set.

Home prices rose by their largest percentage in at least seven years during the second quarter, propelled by low inventories of properties for sale and high demand for bargain-priced foreclosures, according to two reports Tuesday.

Prices rose by 2.5% in June from a year ago, and by 6% from the previous quarter, said CoreLogic Inc., a Santa Ana, Calif., data firm. The quarterly jump was the largest since 2005.

Separately, Freddie Mac, which uses a different methodology, said home prices during the second quarter jumped by 4.8% from the previous quarter. That was the largest jump since 2004.

So either prices went up, or prices went up by double! I guess it’s hard to say when you have no comprehensive data of the industry.

I don’t want to start sounding like a climate skeptic here. In fact, there’s a pretty simple story to tell about why housing looks positive right now. It’s embedded in Fannie Mae’s income report. Simply put, they’re able to sell more of their REO – Real Estate Owned – to investors.

Sales prices on dispositions of our REO properties improved in the second quarter of 2012 as a result of strong demand. We received net proceeds from our REO sales equal to 59% of the loans’ unpaid principal balance in the second quarter of 2012, compared with 56% in the first quarter of 2012 and 54% in the second quarter of 2011.

(Incidentally, all you need to know about Ed DeMarco’s decision to deny principal reduction to underwater borrowers can be seen in Fannie and Freddie’s balance sheet)

This is going up because there is investor demand to buy REO at fire-sale prices (59% of UPB is still pretty low) that they then turn around and rent out. REO to rental has become the next bubble market, with hedge funds buying up massive amounts of properties, outbidding ordinary homeowners, and gathering monopolies in communities that could easily turn into slumlord sites. This REO to rental bubble keeps homes off the market, reducing supply for sales. In addition, banks have kept more and more of their REO off the market – 90% in some cases – which artificially reduces supply and increases prices. There is a significant shortage of homes on the market for sale, relative to demand. Add that to record-low mortgage rates, and you get a price rise. But that leaves out the potentially millions of homes kept off the market. Finally, you have homes that cannot get onto the market because 11 million homeowners are underwater:

More than 11 million homeowners owe more on their mortgages than their properties are worth, meaning they are likely to sell only if they have to move. Others who have equity could be holding out for higher prices down the road.

In hard-hit markets, “only a little bit of the market is tradable because you have so much negative equity,” said Stan Humphries, chief economist at real-estate firm Zillow Inc. “You have very few people willing to sell homes, and a big uptick in demand can create some real price appreciation.”

More from the BBC, because American news outlets reporting on underwater homes would just be verboten. There’s some good news in that the FHFA has reported, at long last, a takeup in HARP refinances for loans over 125% loan-to-value (heavily underwater homes). After almost no refinances in this subset, almost 54,000 refinanced with Fannie and Freddie in June.

It’s true that an increase in home prices, even a slight one, will boost the economy. But there should simply be more skepticism on this. First of all, you have all these factors that don’t point to a healthy housing market, but a bubble of another kind, with millions of properties on the sidelines to work through. Second, the data is just terrible here. Bill McBride notices this when contrasting reports by banks about strong demand for home loans with the Mortgage Bankers Association purchase index for the past week:

There is no evidence in this index of an increase in purchase applications. However the Fed Senior Loan Officer survey showed the opposite [...]

Over half the banks surveyed reported moderately to substantially strong demand for mortgage to purchase homes. It isn’t clear why the MBA index and the Fed survey results are different.

It isn’t clear because the data makes no coherent sense. That’s a huge problem for determining policy and how to move forward.