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

Jed Kolko, Chief Economist
October 1, 2014

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

Check out the full infographic

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.

Jed Kolko, Chief Economist
December 11, 2013

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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With Recovery 67% Back to Normal, Trulia Retires Housing Barometer

Trulia’s Housing Barometer shows the recovery is now two-thirds of the way back to normal. Existing home sales have returned to their long-term normal level, while construction lags significantly. The recovery is not a straight line: it moves through different phases.

Jed Kolko, Chief Economist
September 26, 2013

Since February 2012, Trulia’s Housing Barometer has charted 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 August 2013, all three measures improved: construction starts and existing home sales rose slightly, while the delinquency + foreclosure rate moved strongly downward:

  • Construction starts increased a bit, but still far from normal. Starts were at an 891,000 seasonally adjusted annualized rate – up 1% from July and 19% year-over-year. Still, construction starts are 40% of the way back to normal – the slowest recovering measure of Trulia’s Housing Barometer.
  • Existing home sales have returned to normal. Sales rose in August to a seasonally adjusted annualized rate of 5.48 million – that’s up 13% year-over-year, and up 29% year-over-year when foreclosures and short sales are excluded. Overall, existing home sales are 99% back to normal, even though foreclosures and short sales still make up roughly one eighth of all existing home sales.
  • The delinquency + foreclosure rate continued its downward march. The share of mortgages in delinquency or foreclosure dropped to 8.66% in August, the lowest level in over 5 years. The combined delinquency + foreclosure rate is 60% back to normal.

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