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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.

Jed Kolko, Chief Economist
January 15, 2015

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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White Christmas Is Rare – But At Least It’s Affordable

81% of Americans live in counties where Christmas probably won’t be white. Among large metros, snowfall or snow cover on Christmas is most likely in Minneapolis-St. Paul, Buffalo, and Syracuse.

Jed Kolko, Chief Economist
December 17, 2014

Dreaming of a white Christmas? Keep dreaming. For most Americans, chances aren’t great for Christmastime snow. From our perch in snowless San Francisco, we crunched detailed weather data from the National Climatic Data Center for 1980–2013 to discover where Christmases tend to be white. But why should you listen to me, a Jewish guy in California? As it happens, I know from snow. I grew up in Rochester, NY, which is so snowy and overcast that as a child I thought the color of the sky was white, not blue. As we’ll see, the numbers back me up.

It turns out—who knew?—that there’s no universally agreed-upon definition of a white Christmas, according to our exhaustive research (i.e., checking Wikipedia). For Americans, white Christmas means an inch or more of snow on the ground. But, as my colleague who hails from down the Thruway in snowbound Buffalo pointed out, that could mean grimy old snow that fell days earlier. He prefers the British definition, which is any fresh snowfall on Christmas Day.

We were feeling generous with holiday spirit, so for this analysis we defined white Christmas as either snowfall of any amount or a snow cover of at least an inch. With that, we tallied the percentage of white Christmases from 1980 to 2013 in counties and metros across the country.

A White Christmas is Hard to Find                                  

Sorry to say, your Christmas may be merry, but it probably won’t be white. Half of American households live in counties where fewer than 10% of Christmases since 1980 have been white. And just 19% of households live where at least 50% of Christmases have been white. America’s white Christmas belt runs from the upper Midwest across upstate New York to Maine, especially along the Great Lakes, as well as through the Rockies and other mountainous areas. Much of the white Christmas belt is thinly populated. Consider this: Measured by land area, an impressive 40 percent of the U.S. has a better than 50-50 chance of having a white Christmas—30 percent if we exclude big, snowy Alaska. But just 19% of households live in those wintry regions.

WhiteXmasMap

White Christmases Cost Less Green

So most of us won’t see snow on Christmas. But if you want to make your dreams of a white Christmas come true, you might be able to afford it. Housing prices are comparatively low in the metros with the snowiest Christmases, particularly Buffalo, Rochester, and Syracuse in upstate New York, as well as Grand Rapids, MI. What’s the white Christmas capital of the U.S.? It’s Minneapolis-St. Paul, where Christmases are white 79% of the time. Home asking prices in these winter wonderlands are far below what’s typical on the coasts and below the national average for large metros.

The 10 Metros Where Christmas Is Most Likely To Be White
# Metro % of Christmases, 1980-2013, with any snowfall or 1” snow cover Median asking price per square foot, $
1 Minneapolis-St. Paul, MN-WI 79% 125
2 Buffalo, NY 75% 94
3 Syracuse, NY 71% 89
4 Salt Lake City, UT 70% 122
5 Grand Rapids, MI 69% 85
6 Rochester, NY 62% 85
7 Warren-Troy-Farmington Hills, MI 58% 117
8 Albany, NY 57% 136
9 Milwaukee, WI 55% 114
10 Worcester, MA 53% 145
Note: Among the 100 largest metros. Averaging over those 100 metros, the national median asking price is $160 per square foot.

As the figure below shows, white Christmases are rare in more expensive metros. And in the priciest markets, in California and Hawaii, they’re unheard of. The only expensive markets that have at least a 25% chance of a white Christmas are Boston and neighboring Middlesex County and Peabody.

WhiteXmasScatter

After this year’s polar vortex, East Coasters might feel like they deserve a white Christmas—right? Here’s why they’re not on the whitest-Christmas list. Shoveling deeper into the data, we found that Boston, New York, Philadelphia, Washington DC, and other metros on the eastern seaboard tend to get most of their snowfall later in winter. In contrast, upstate New York, the upper Midwest, and the Rocky Mountain metros tend to get more of their annual snow dump a little earlier — including around Christmastime. One reason for the difference is that the Great Lakes region gets lake-effect snow caused by colder air passing over warmer water. That’s common early in winter before the lakes get cold or freeze. Plus, the snow that does fall is more likely to stick where the ground and the air are cold, and the Atlantic Ocean keeps those East Coast metros a little more temperate until later in the winter.

Whether or not your dreams include a white Christmas, all of us at the Trulia Trends team hope they come true. Merry Christmas—or Happy Holidays if you live in a region where that’s more appropriate—and Happy New Year in 2015!

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