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Housing Barometer: Improvement on All Fronts in 2014

All five measures of the Housing Barometer improved over the past year. The indicator that the recovery now most depends on—young-adult employment—made the largest leap, but is still not quite halfway back to normal.

How We Track This Uneven Recovery

Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is returning to “normal” based on several indicators. The recovery is uneven and some housing activities are improving faster than others. Our Barometer highlights five measures:

  1. Existing home sales, excluding distressed sales (National Association of Realtors, NAR).
  2. Home-price levels relative to fundamentals (Trulia Bubble Watch).
  3. Delinquency plus foreclosure rate (Black Knight, formerly LPS).
  4. New construction starts (Census).
  5. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS).

Home prices from our Bubble Watch are reported quarterly. The other four measures come out monthly. To reduce the volatility of these measures, we use three-month moving averages, that is, the average over the past three months recalculated each month. For each indicator, we compare the latest data with its worst reading during the housing bust and its pre-bubble normal level.

Housing Barometer-01 011315

Most Barometer Measures are Three-Quarters Back to Normal

All five Housing Barometer indicators made good progress over the past year and also improved from the previous quarter. Employment among young adults—which had been the laggard indicator—posted the largest gain. Prices and the delinquency plus foreclosure rate also took big steps toward normal.

Housing Indicators: How Far Back to Normal?

Now One quarter ago One year ago
Existing home sales, excl. distressed 82% 80% 73%
Home price level 82% 73% 66%
Delinquency + foreclosure rate 76% 74% 59%
New construction starts 53% 49% 46%
Employment rate, 25-34 year-olds 46% 39% 26%
Note: For each indicator, we compare the latest available data to its worst reading during the housing bust and its pre-bubble normal level.
  • Existing home sales, excluding distressed, were 82% back to normal in November, up slightly from 80% one quarter ago and 73% one year ago. Foreclosure and short sales declined, and nondistressed sales rose 8% year-over-year in November. However, new home sales continued to lag. As a result, existing home sales dominated the market even more than usual. The ratio of existing to new home sales was 11 to 1—well above the long-term normal ratio of 6 to 1.
  • Home prices moved closer to normal. Nationally, prices were just 2.4% undervalued in the fourth quarter of 2014, according to Trulia’s Bubble Watch. That compares with 13.5% undervalued at the worst of the housing bust. Prices are now four-fifths of the way back to normal, that is, the level at which they’re neither over- nor undervalued. At the local level too, prices are nearing normal. Seventy of the 100 largest metros are now less than 10% over- or undervalued—the highest number since the recovery began.
  • The delinquency plus foreclosure rate was 76% back to normal in November, up considerably from 59% one year ago. Fewer borrowers are at risk of delinquency as the share declines of homeowners who are underwater—those who owe more on their homes than the properties are worth.
  • New construction starts are 53% back to normal, the same as one quarter ago and up from 46% one year ago. In 2014, through November, multiunit construction accounted for 34% of all new home starts—the highest share for any year since 1973. Multiunit starts are booming and should end 2014 at the highest level since 1988. At the same time though, single-family starts are running far below pre-bust levels. As a result, starts overall are just past halfway back to normal, lagging behind the recoveries in sales, prices, and the delinquency plus foreclosure rate.
  • Employment for young adults leapt ahead in the past year: finally, the youngsters are finding work. The three-month average in December showed that 76.3% of adults age 25-34 were employed. At 46% back to normal, that’s near the halfway mark. Young adults need jobs in order to move out of their parents’ homes, form their own households, and eventually become homeowners. For those reasons, the housing recovery depends on millennials getting jobs. Among 25-34 year-olds, just 12% who are employed live with their parents versus 21% of those who aren’t collecting a paycheck.

How much longer will the recovery take? It will depend on the two lagging measures—construction starts and young-adult jobs. While multiunit starts have roared back, single-family construction is being restrained by low household formation and a still-elevated vacancy rate. Those young adults who took jobs in the past year aren’t yet buying single-family homes. It typically takes years to save for a down payment and build up an income history. So those who got hired last year—or who will find work this year—won’t be buying homes for several years to come. Affordability is an especially big challenge for young adults. Prices are rising faster than incomes and millennials are clustering in less-affordable markets where buying is further out of their reach. Despite progress, the recovery lurches ahead unevenly and still has a way to go.

NOTE: Trulia’s Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (Black Knight), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the normal share of sales that are distressed is 5%; Black Knight reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble normal level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest data are from December for the employment rate; November for existing home sales, new construction starts, and the delinquency + foreclosure rate; and the fourth quarter for home prices.

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Housing Barometer: Recovery Continues, But Virtuous Cycle Not So Saintly

Three out of five Housing Barometer measures are getting close to normal. But the two measures that hitch housing to the broader economy are still struggling, so the job market and housing market aren’t helping each other as they should.

How We Track This Uneven Recovery

Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is returning to “normal” based on multiple indicators. Because the recovery is uneven, with some housing activities improving faster than others, our Barometer highlights five measures:

  1. Existing home sales, excluding distressed sales (National Association of Realtors, NAR)
  2. Home-price levels relative to fundamentals (Trulia Bubble Watch)
  3. Delinquency + foreclosure rate (Black Knight, formerly LPS)
  4. New construction starts (Census)
  5. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS)

Home prices from our Bubble Watch is a quarterly report. The other four measures are reported monthly. To reduce volatility, we use three-month moving averages for these measures. For each indicator, we compare the latest available data to (1) its worst reading during the housing bust and (2) its pre-bubble “normal” level.

MD-235-Housing-Barometer_Q32014-v2

All Five Measures Improved Year-Over-Year

Four of the five Housing Barometer indicators made good progress over the past year and the fifth – non-distressed existing home sales – eked out a slight increase. But, despite improvement, the employment rate for young adults still hasn’t gotten even half of the way back to normal.

Housing Indicators: How Far Back to Normal?

Now One quarter ago One year ago
Existing home sales, excl. distressed 80% 64% 79%
Home price level 75% 66% 56%
Delinquency + foreclosure rate 74% 74% 56%
New construction starts 49% 49% 37%
Employment rate, 25-34 year-olds 37% 35% 25%
For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level
  • Existing home sales (excluding distressed) were 80% back to normal in August, up from 64% one quarter earlier, after stumbling from 79% one year ago. Distressed sales keep falling. Increasingly, foreclosures are concentrated in states with a foreclosure laws that result in a longer legal process. Existing sales are in better shape than new home sales, dominating the market even more than usual. The ratio of existing to new home sales was 10:1 in August, compared with a long-term normal ratio of 6:1..
  • Home prices continue to climb, though at a slower rate. Trulia’s Bubble Watch shows prices were 3.4% undervalued in 2014 Q3, compared with 13.5% undervalued at the worst of the housing bust. That means prices are three-fourths of the way back to their “normal” level at which they’re neither over- nor undervalued.
  • The delinquency + foreclosure rate was 74% back to normal in August, the same as one quarter ago and up significantly from 56% one year ago. With the share of mortgage borrowers with negative or near-negative equity dropping, the default rate should continue to go down.
  • New construction starts are 49% back to normal, the same as one quarter ago and up from 37% one year ago. Multi-unit starts continue to lead the construction recovery. Year-to-date multi-unit starts are up 23% year-over-year, versus just 3% for single-family starts. Even though single-family starts are far below normal levels, household formation looks too weak to support more single-family homebuilding.
  • Employment for young adults brings up the rear. August’s three-month moving average shows that 75.7% of adults age 25-34 are employed, which is just 37% of the way back to normal. Because young adults need jobs in order to move out of their parents’ homes, form their own households, and eventually become homeowners, the housing recovery depends on millennials finding work. Among 25-34 year-olds, just 12% who have jobs live with their parents. By contrast, 21% without jobs do.

The Housing Market and the Broader Economy Aren’t Helping Each Other

The two lagging Housing Barometer measures – construction and young-adult employment – connect the housing market to the job market. First, housing should help jobs: construction adds to employment not only in homebuilding but also in related industries like furniture manufacturing and home-improvement retailing. Second, jobs should help housing: young adults are more likely to rent or buy, rather than live with others, if they have jobs. In this recovery, young-adult employment and construction are weak – so the virtuous cycle of housing and jobs isn’t looking quite so virtuous.

That’s not to say that housing isn’t doing anything for the economy. Rising home prices make homeowners wealthier, and the more wealth people have, the more they spend. And the decline in defaults and foreclosures have helped stabilize the financial system and hard-hit neighborhoods. As we’ve seen, home prices right themselves, as undervalued homes attract investors and other buyers, pushing prices back up. In turn, higher prices make defaults less likely.

But as the housing recovery continues, it depends less on the “rebound effect” – this tendency of the housing prices to right themselves – and more on such fundamentals as jobs, income growth, and household formation. These have been slow to improve in this recovery. In particular, the Housing Barometer shows that young-adult employment lags. What’s more, new Census data showed that median income has stagnated and household formation is far below normal levels. In this recovery, jobs and housing can’t get what they need from each other.

 

NOTE: Trulia’s Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (Black Knight), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the “normal” share of sales that are distressed is 5%; Black Knight reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest data are from August for the employment rate, existing home sales, new construction starts, and the delinquency + foreclosure rate; and Q3 for home prices.

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Housing Barometer: Recovery Shakes Off Early-Spring Slump

For the first time during the housing recovery, 4 out of 5 Housing Barometer measures are at least halfway back to normal. But young adults are still struggling to get jobs.

How We Track This Uneven Recovery
Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is moving back to “normal” based on multiple indicators. Because the recovery is uneven, with some housing activities improving faster than others, our Barometer highlights five measures:

  1. Home-price levels relative to fundamentals (Trulia Bubble Watch)
  2. Delinquency + foreclosure rate (Black Knight, formerly LPS)
  3. Existing home sales, excluding distressed sales (National Association of Realtors, NAR)
  4. New construction starts (Census)
  5. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS)

The first measure, home prices from our Bubble Watch, is a quarterly report. The other four measures are reported monthly; to reduce volatility, however, we use three-month moving averages for these measures. For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level.

MD-235-Housing-Barometer_Q22014

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Housing Barometer: Recovery Staggers Forward Visualization Preview

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Housing Barometer: Recovery Staggers Forward

Trulia’s Housing Barometer shows that 4 of the 5 key housing indicators improved over the past year: prices, the delinquency+foreclosure rate, non-distressed home sales, and young-adult employment are all in better shape than one year ago. However, despite improvement, young-adult employment still isn’t halfway back to normal; neither is the fifth indicator, construction starts.

How We Track This Uneven Recovery
Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is moving back to “normal” based on multiple indicators. Because the recovery is uneven, with some housing activities improving faster than others, our Barometer highlights five measures:

  1. New construction starts (Census)
  2. Existing home sales, excluding distressed sales (National Association of Realtors, NAR)
  3. Delinquency + foreclosure rate (Black Knight, formerly LPS)
  4. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS)
  5. Home-price levels relative to fundamentals (Trulia Bubble Watch)

The first four measures are reported monthly; to reduce volatility, we use three-month moving averages for these measures. The fifth, prices from our Bubble Watch, is a quarterly report. For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level.

Housing-Barometer_Q12014

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Housing Barometer: Recovery Moving Ahead, Unevenly Visualization Preview

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Housing Barometer: Recovery Moving Ahead, Unevenly

Trulia’s revised Housing Barometer shows that 3 of the 5 key housing indicators are on track towards a full recovery. Home sales and prices are approaching normal levels, but construction and young-adult employment are badly lagging. At the metro level, some housing markets are fully recovered, while others are far from normal.

Tracking This Uneven Recovery
Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is moving back to “normal” based on three indicators: construction starts (Census), existing home sales (NAR), and the delinquency + foreclosure rate (LPS). Today, we’re re-launching our Housing Barometer, which better tracks the uneven recovery with some recalibrations and two additional housing market indicators:

  1. The level of home prices relative to fundamentals, based on our own Bubble Watch report.
  2. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership, based on the Bureau of Labor Statistics’s (BLS) monthly employment report.

In addition to adding two new measures, we’re excluding distressed sales from existing-home sales because non-distressed sales are a better measure of healthy market activity than overall sales. We’re also using three-month moving averages for the indicators that are reported monthly (sales, delinquency + foreclosure rate, starts, and employment) to smooth out volatility.

For each indicator, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level. We’re also no longer averaging together the “back to normal” levels across different indicators because the average masks huge differences among these indicators. Instead, we are taking a closer look at the recovery of each indicator: three are most of the way back to normal and closing the gap quickly, while two others are stagnating near troublesome lows.

MD-235 Housing Barometer_9

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