What does a housing recovery even look like?
Everyone can agree that the housing market hasn’t fully recovered yet. But the mixed signals from the sector have made it much harder to tell how far we’ve come--and how far we still have to go.
On the one hand, demand is still weak: mortgage applications are down, housing prices have continued to fall, and rising foreclosures could depress them even further. On the other hand, single-family home construction is no longer in free fall, delinquencies are down, and residential real-estate investment -- including new home building and renovations -- has picked up for the first time in years.
As a result, there are lots of contradictory takes on the housing market right now, with some already heralding a “recovery winter” for housing while others maintaining that we haven’t hit bottom yet, much less bounced back. As a result, “there seems to be some disconnect or bit of talking past one another on the issue of a housing recovery,” writes Karl Smith. He puts himself in the Recovery Winter camp, arguing that a potential shift away from single-family toward multi-family housing could explain some of the seemingly contrary indicators.
Jed Kolko has proposed another way to make sense of these mixed signals. Kolko--chief economist at real-estate search engine Trulia--has created a “Housing Barometer” to gauge the housing recovery. The index averages three factors--new construction starts, existing home sales, and the delinquency plus the foreclosure rate--setting 0 percent as the lowest the indicators have been and 100 percent as back to normal. Kolko calculates that the barometer for February 2012 is at 34 percent--that is, we’re one-third of the way back to a full housing recovery.
By that measure, Kolko estimates that housing won’t get back to 100 percent until late 2015. In other words, he concludes, “we still have a long way to go.”