"All this has happened before. All this will happen again."
-- From The Book of Pythia, Battlestar Galactica

Caprica Six, well remembered by Battlestar Galactica fans for her ability to alluringly quote prophecy, would no doubt derive a sly smile from the following bit of news reported last week: In the small town of Martinsburg, W.Va., for-sale homes are drawing bidding wars.

The question is, do we side with Caprica Six and regard this event as the first misstep of a new and equally fated cycle, or is it just short-term market action, much like the weekly pop and tumble of Citigroup (NYSE:C) shares?

At this stage, it's impossible to know. However, when other, more noteworthy pockets of housing strength crop up around the nation, there are a couple of things that you may want to consider as you develop an opinion of the housing market's overall direction. 

Fits and starts
Much like the behavior of the stock market lately, a housing recovery is likely to be marked by alternating periods of confidence and despair. For one thing, just when home prices show signs of stabilizing, that very well could be the moment when patient sellers come out of the woodwork, flooding the market with inventory and once again depressing prices. 

I am not only referring to private homeowners; there is evidence that banks, in addition to hoarding their cash, have also been sitting on their tuffets when it comes to their foreclosed homes. A recent San Francisco Chronicle article quoted a RealtyTrac representative estimating a possible 600,000 homes nationwide that have been repossessed but not put up for sale. And that figure looks poised to swell as JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Fannie Mae (NYSE:FNM), and Freddie Mac (NYSE:FRE) have all escalated foreclosure activity in past weeks, lifting moratoriums that had spared troubled borrowers.

The extent to which this situation represents a hazard partially depends on the restraint and patience that banks are able and willing to employ in bringing these properties to market. From my point of view, the whole thing is uncomfortably familiar to AIG's (NYSE:AIG) task of liquidating its massive derivatives book.

Forecast: cloudy with a chance of reality
But for investors who are less concerned about a housing recovery falling flat and more worried about a rapid uptick in prices -- in turn driving an outbreak of homebuilding from the likes of Centex (NYSE:CTX) -- there is cause to believe that any bout of unbridled enthusiasm will be fairly short-lived. Most notably, given the recent wealth destruction, it should be awhile before the country suffers from a sustained oversupply of picket-fence dreamers who make the grade on both credit score and down payment requirements.

This notion of tempered demand extends to poor-credit borrowers who have historically achieved homeownership through the Federal Housing Adminsitration (FHA). Considering the fact that overdue or foreclosed loans backed by the FHA recently rose to 7.2% of the Administration's total portfolio, even the buy 'em up mantra of the government looks due for a period of rest and reassessment.

All said, I doubt that there will be a single all-clear signal on housing. Instead, much like the final episode of Battlestar Galactica, the housing funk may appear to end several times before the credits roll.

Other Foolish perspectives on housing:

Fool contributor Mike Pienciak does not hold shares in any company mentioned. The Fool has a disclosure policy.