Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Housing Sector Inches Closer To Normalcy

Written by Than Merrill

With a new year upon us, it is easy to reflect on the events that transpired over the last 12 months. As perhaps the most important aspect of 2014, appreciation rates flooded the headlines of media outlets across the country. In fact, the housing sector has been the beneficiary of nearly three consecutive years of price growth. For all intents and purposes, the country’s housing sector is on the mend. However, very few – if any – would deny that we still have a long way to go. Even the most recent statistics proposed by Trulia suggest that the housing market still has some ground to make up. Per Trulia, the housing market is approximately three-quarters of the way back to where it should be. And while it is on the right path, there are still some significant obstacles to overcome.

Of course, there are many opinions as to what constitutes a normal market, but the general consensus is that we are nearly there. It just so turns out that Trulia based their findings on four specific indicators: existing home sales and prices, new construction, millennial employment rate and new construction. That said; existing home sales and prices appear to be pacing the current recovery. According to Trulia, the sales and prices of existing homes are 82 percent of the way back to normal. No more than a year ago, the same indicators were only 73 percent and 66 percent, respectively. The year-over-year jump is encouraging to say the least.

“We’ll continue to see improvement in existing home sales, as I expect we’ll see more inventory this year,” said Jed Kolko, Trulia’s chief economist. “That could further slow down price gains, but should add to the volume of sales.”

Unfortunately, not all of the data Trulia examined bolstered the recovery process. Of the indicators Trulia accounted for, millennial employment is the most problematic. The entire population of millennials, those born between the early 1980s and the early 2000s, is struggling to walk the path of gainful employment. Through almost no fault of their own, millennials are finding it particularly difficult to save money. In addition to graduating from college during one of the worst recession in American history, the majority of this population has been burdened by crippling student loan debt, strict underwritings and large down payments. Moreover, finding a job is not easy when you have little experience. During the downturn, Millennials were the first ones let go because of a distinct lack of experience. Essentially, the odds have been against this group for years. Statistics from Trulia prove it: the employment of 25- to 34-year-olds is only 46 percent back to the way it should be.

“But keep in mind that’s only halfway back to normal. Having a job matters for housing,” added Kolko.

Without the ability to pay down a mortgage, let alone receive approval for one, millennials will remain sidelined. However, as the New Year is upon us, hope is on the horizon. Experts believe 2015 will be key to millennial participation. In addition to the expansion of the economy, rents are continuing to surpass previous records. In other words, owning a home is becoming more attractive to members of this population. Moreover, President Obama recently announced plans to reduce the premiums on mortgage insurance. This move alone is expected to bring about 140,000 new buyers into the market.

It should come at no surprise that single-family housing starts are struggling in the face of a prosperous existing home inventory. It doesn’t help that household formation consists almost entirely of rentals either. Nonetheless, the rental sector is seeing things improve on nearly a daily bases. Homebuilders, on the other hand, are struggling to make ends meat.

As one of the indicators Trulia focused on in their recent report, mortgage delinquencies continue to prevent the recovery from gaining he traction it so desperately needs. According to data presented by RealtyTrac, 2014 saw more than 1 million homes enter into the foreclosure process. While that number represents the lowest number of filings since the recession began, there is still a lot of room for improvement. Of particular concern, however, was the amount of filings in December. The end of 2014 marked a 17-month high. The increase was due, in large part, to the aggressive actions of lending institutions. Catching up on the entire backlog of delinquent mortgages became a priority for banks and lenders.

“A recent surge in foreclosure starts and scheduled foreclosure auctions in several states in the last few months of 2014 indicate that lenders are gearing up for a spring cleaning of deferred distress in the first half of 2015 in some local markets,” said RealtyTrac Vice President Daren Blomquist.

In a recent report issued by CoreLogic, 41,000 people lost their homes to foreclosure by November 2014. While high, that number is still below the 46,000 that lost their homes in the previous year. While foreclosures are trending in the right direction, there is still some ground that needs to be made up.

“It will be about two more years until we are back to historical norms,” said Molly Boesel, a senior economist at CoreLogic.