Trulia: 3 weights pull the housing recovery down | South Salem Real Estate


The housing market is recovering, albeit a slow and staggering pace, but it is still improving.

According to Trulia (TRLA) Chief Economist Jed Kolko’s latest Housing Barometer blog, “Of the Housing Barometer’s five indicators, all have improved over the last year except new construction starts. But only rising home prices and falling delinquencies + foreclosures have been steady. The other three measures – sales, starts, and young-adult employment – have zigzagged, both gaining and losing ground over the year.”

So what are the dead weights adding pressure to the strength of the recovery?

In the blog, Kolko defines three variables holding the recovery back.

1. Affordability is getting worse.

Kolko mentions that even though it remains cheaper to buy a home than to rent in the 100 largest metros, homeownership is pricier than last year. “And declining affordability is a bigger challenge for first-time home buyers than for current homeowners looking to trade in a home that has also increased in value,” Kolko said.

2. Investors are slowly exiting.

Since prices have risen and fewer people are losing homes to foreclosure, Kolko noted that investing-to-rent makes less sense. Previously, investors were a main driver in pushing up home sales and prices, but as they step back, price gains are slowing and sales volumes are sagging, he added.

3. The mortgage market is unstable.

Purchase applications and mortgage-based home sales are declining, as rates continue to rise and new regulations are short-term uncertainty. “But this reason may be only a temporary hurdle: rates remain low by historical standards, and the new mortgage rules offer longer-term clarity that should encourage banks to make more loans that are within the new rules,” Kolko said.

Although this unusual winter created some burden on the housing market, these reasons are the main drivers behind recent stumbles in sales and starts.

But the good news: the delinquency and foreclosure rate is dropping, and young adults are going back to work.

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