First, the good news: The real estate market has clawed its way back from the brink and is about a third of the way to a normal, pre-bubble market. The bad news: It’s going to take until the end of 2015 to get us the rest of the way, and recovery could take even longer if the economy loses steam again.
Real estate website Trulia’s new housing barometer shows that real estate is starting to recover from the battering it sustained during the recession. Chief economist Jed Kolko looked at construction starts, existing home sales and the rate of delinquencies and foreclosures, then combined these indicators to create the barometer. Kolko says housing starts are a good indicator of homebuilder confidence, while the number of sales and the foreclosure rate illustrate consumers’ financial stability as well as their confidence level.
The barometer shows that we’re about 34% higher than the market trough on these metrics, compared to 16% a year ago. This is definitely movement in the right direction, but if the recovery continues at this pace, we won’t be at 100% — that is, full recovery — until the end of 2015.
Kolko says it’s important to remember the “new normal,” when it arrives, might not look just like the market before the bubble and subsequent crash. For instance, he says, “The homeownership rate probably won’t go all the way back up to what it was before the bubble and that’s both because of people being more risk averse about homeownership and it’s also demographic.” More baby boomers downsizing their living accommodations might opt for renting instead of buying, he says.
“Also, environmental regulations and gas prices might make big houses in outlying areas less appealing than they used to be,” he says.
Kolko says if the economy recovers more quickly, that would raise housing demand and accelerate the pace of the recovery. On the other hand, if a crisis in Europe or other factors drive the U.S. back into recession, that 2015 estimate could turn out to be overly optimistic.