Housing Now 64% Back to Normal, Recovery Enters Phase Three

After a slight hiccup in June, where indicators of the housing market’s recovery slumped from the previous month, the market soldiers on as it is now 64% back to “normal,” according to Trulia’s latest Housing Barometer.

Measuring three housing indicators including construction starts, existing home sales and the delinquency-plus-foreclosure rate, Trulia’s Housing Barometer compares monthly data to how bad numbers were when they bottomed and their pre-bubble “normal” levels.

In July, all three measures improved to bring Trulia’s analysis of housing to 64% back to normal. 

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Construction starts were up 6% from June at an 896,000 seasonally adjusted annualized rate, but slightly below the average rate from the first six months of 2013. 

While single-family and multi-family starts rose 20% and 33%, respectively, from last year’s levels, they still have a long way to go, according to Trulia’s Chief Economist Jed Kolko, as constructions starts are now 41% of the way back to normal.

Existing home sales also leapt to their second-highest level in six years, jumping to a seasonally adjusted annualized rate of 5.39 million—up 17% year-over-year. Excluding foreclosures and shorts sales, existing home sales were up 31% in July from year ago levels. 

Inventory expanded for the sixth straight month, notes Kolko, even when taking seasonality into account to make existing home sales 94% back to normal.

Another indicator of the market’s recovery is a decline in the delinquency-plus-foreclosure rate, which continued its retreat in July. 

The share of mortgages in delinquency or foreclosure dropped to 9.23% for the month, which Trulia notes as the second-lowest level in almost five years. 

Combined, the delinquency-plus-foreclosure rate is 56% on its way back to normal levels. 

Collectively, averaging these indicators together lead Trulia to its analysis on the recovery progress of the real estate market, where just one year ago the market was 36% on its path back to normal. 

Given the marked progress in 2013 thus far, housing has entered what Trulia refers to as its third phase of recovery. 

“We are now in phase three, which began in spring 2013, after inventory bottomed in January and mortgage rates started to rise in May,” writes Kolko. “Both are making their climb after 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, Kolko adds, will begin when young adults finally start moving out of their parents’ homes, thus boosting household formation. 

“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,” writes Kolko. 

Written by Jason Oliva

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