Their ship might have run aground roughly three years ago now, but the housing bubble’s castaways are still struggling to reach dry land as the residential real estate sector heads into 2012.

Overall, respondents to Banker & Tradesman’s annual reader survey, conducted in partnership with Sudbury-based market research firm Bannon & Co., were more cautious this year than last. More than 52 percent of respondents said the Massachusetts economy would improve in 2012 – versus 62.9 percent who had hopes of improvement last year.

But though respondents were less bullish, they were also less fearful, with a solid 37.2 percent saying they expect the economy to remain at about 2011 levels, while 10.9 percent foresaw a decline – a drop from last year, when 15.2 percent thought economic conditions would worsen in 2011.

Events at the national and federal level, rather than statewide efforts, seemed to hold more sway over respondent’s perceptions. More than 80 percent of respondents said their business was affected by political gridlock, and almost half of respondents said the passage of the Dodd-Frank bill had raised compliance costs for their business significantly (11 percent or more).

‘Like A Yo-Yo’

For the real estate sector, the bulk of the storm clouds on the horizon were linked to federal regulatory changes, with Realtor’s main ongoing worry the potential changes to the mortgage interest tax deduction (MID). The Obama administration has hinted that it might be open to changes in the MID to address the deficit.

The mortgage interest deduction “does seem to be a bit of a concern. So many people take that on their taxes,” said Trisha McCarthy, an agent with Keller Williams in Newburyport and the 2012 president of the Massachusetts Association of Realtors.

But overall, she added, “In baby steps, we’re seeing it get better. The buyers are out there.”

The economic outlook showed substantial regional variation. Western Massachusetts was widely perceived as being down in the dumps, with 83.3 percent of readers calling the market “somewhat sick,” while a further 13.1 percent regarded it as “on its death bed.”

Perhaps unusually for such a regularly ebullient crowd, those survey respondents identifying themselves as Realtors were even more negative on Western Mass. than the rest of the respondents. A full 100 percent of Realtors said Western Mass. was unhealthy, including 22.2 percent who thought it was on its death bed.

Kevin Sears, co-broker/owner of Sears Real Estate in Springfield, said he only partially agreed with that assessment.

“I see some tremendous opportunities,” Sears told Banker & Tradesman. “But until the employment situation gets better out here, I think we’ll continue to lag behind the rest of the state.”

Still, he said he expected a moderate improvement compared with last year – especially if Mother Nature plays her part.

“The market in the western part of the state has been like a yo-yo this year. When you have the snowstorms we had in January in February, the tornado on June first, Hurricane Irene and Tropical Storm Lee that came through and did the flooding, and then the Snowtober event – next year has got to be better,” he said. “I’m definitely more optimistic for ’12.”

True To Form

Greater Boston’s market, in contrast, fared far better. Almost two thirds (64.6 percent) of respondents called the area healthy, including 15 percent who called it “very healthy.” But even in Boston, Realtors were more cautious than the average respondent, with only 10.3 percent calling the market very healthy and a total of 62 percent feeling it was healthy overall.

Kevin Ahern, broker/owner of Otis & Ahern, said he’s seen robust activity in the downtown Boston market, driven largely by high-end, cash-rich buyers.

“When you look at high end data points we look at every week, both 2010 and 2011 are clustered around a five year high [in sales]. Over 30 percent of the transactions [in 2008-2010] were about 30 percent cash, this year it’s 46,” he said. “We dodged a huge bullet with the downtown market, and we’re off to what I think is going to be a very strong 2012. It’s a strong owner-occupant market.”

Realtors did return to form when it comes to their own specialty. While slightly more than half of all respondents thought single-family home sales would increase in 2012, 65.7 percent of Realtors predicted growth. That’s a significant step up from last year, when only 41.6 percent of respondents said they thought single-family sales would grow.

Condo sales inspired slightly less confidence, with 42.4 percent of all respondents believing they were somewhat or very likely to grow. But here, too, realtors were more optimistic, with 53.1 percent foreseeing condo sales growth in the new year. That’s also up from last year, when only 33.8 percent believed condo sales would grow.

That confidence might have been a bit misplaced for this year – as of press time, 2011 home sales are down 6.7 percent from 2010 – but the market is coming off 5 consecutive months of year-over-year sales increases, with declining inventories a welcome trend.

Long And Short Of It

While confidence is up for 2012, some of those sales increases are likely to come in distressed areas of the market, if survey respondents are to be believed. More than two-thirds of all respondents, and 65.6 percent of Realtors, said they believe short sales will increase in 2012. Exactly 62 percent of all respondents, and 59.4 percent of Realtors, also think REO sales will increase in 2012. Both percentages are down from last year, when more than 70 percent of respondents thought short and REO sales would increase.

Linda Kody, broker/owner of Kody & Co. in North Andover and an REO and short sale specialist, said she thinks respondents have it on the money. “There will be a continuation of REO property, but I think that banks are realizing that it’s much more beneficial to them, to their investors, to the community, the allow properties to go to short sale,” she said. “It protects the values in the property. I think we’re going to see a lot more short sales.”

But for all their importance to the market and increased attention from the banks, short sales are still time-consuming, with 46.4 percent of Realtor respondents saying they take between four to six months to complete. An additional 32.2 percent said their short sales take even longer.

“I’ve seen improvements, and they certainly do seem to be trying to get back to people, but the banks are still overwhelmed and understaffed,” said McCarthy.