Friday, 30 August 2013 20:12

August Housing Barometer Details Recovery Phase 3

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Jed Kolko, Chief Economist

August 29th, 2013

Each month, Trulia’s Housing Barometer charts how quickly the housing market is moving back to “normal.” We summarize three key housing market indicators: construction starts (Census), existing home sales (NAR), and the delinquency-plus-foreclosure rate (LPS First Look). For each indicator, we compare this month’s data to (1) how bad the numbers got at their worst and (2) their pre-bubble “normal” levels.

In July 2013, all three measures improved: construction starts and existing home sales rose, while the delinquency + foreclosure rate notched downward:

  • Construction starts increased but still have a long way to go. Starts were at an 896,000 seasonally adjusted annualized rate – up 6% from June but slightly below the average rate from the first six months of 2013. Year to date, single-family and multi-family starts rose 20% and 33%, respectively, above last year’s levels. Construction starts are 41% of the way back to normal.
  • Existing home sales leapt to their second-highest level in six years. Sales jumped in July to a seasonally adjusted annualized rate of 5.39 million – that’s up 17% year-over-year, and up 31% year-over-year when excluding foreclosures and short sales are excluded. For the sixth straight month, inventory expanded, even after taking seasonality into account. Overall, existing home sales are 94% back to normal.
  • The delinquency + foreclosure rate continued its retreat. The share of mortgages in delinquency or foreclosure dropped to 9.23% in July, the second-lowest level in almost 5 years. The combined delinquency + foreclosure rate is 56% back to normal.

Averaging these three percentages together, the housing market is now 64% back to normal, compared with just 36% one year ago.

But the recovery is not only moving ahead; it entered its third phase this spring:

  • The first phase of the recovery began in 2009, when the housing market ended its free fall and both sales and construction started their long, slow climb back from the bottom.
  • The second phase began in early 2012, when home prices bottomed and started their steep rebound.
  • We are now in phase three, which began in spring 2013, after inventory bottomed in January and mortgage rates started to rise in May. Both are making their climb after reaching historic lows, while price gains are slowing down. Existing-home sales have returned to near-normal levels, as have prices, which now look just 5% undervalued.

The fourth phase – which will begin when young adults finally start moving out of their parents’ homes, boosting household formation – is yet to come. Until this happens, construction and new home sales will remain well below normal – even though prices and existing-home sales are now very close to their normal, sustainable levels.



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