Next year looks to be the year of the repeat home buyer, as worsening affordability discourages first timers and investors; also, the buying process will be less frenzied. Hot markets to watch are primarily in the South, Plains, and Mountain states. Rental activity will swing back toward urban apartments, away from single-family homes.
The housing market continued its uneven recovery in 2013 and will enter 2014 closer to normal than it was a year earlier. Consumer optimism is climbing back: in Trulia’s latest survey, 74% of Americans said that homeownership was part of achieving their personal American Dream – the highest level since January 2010. Even among young adults (18-34 year olds), many of whom struggled through the recession and are still living with their parents, 73% said homeownership was part of achieving their personal American Dream, up from 65% in August 2011. Rising prices over the past two years have been great news for homeowners, especially for those who had been underwater, and the real estate industry has benefited from both higher prices and more sales volume.
At the same time, the effects of the recession and housing bust still sting: the barriers to homeownership remain high, and a few markets – mostly in Florida – still have a foreclosure overhang. Plus, the housing recovery itself brings its own challenges, including declining affordability and localized bubble worries, especially in southern California.
Barring any economic crises, the housing market should continue to normalize. Here are 5 ways that the 2014 housing market will be different from 2013:
Trulia’s revised Housing Barometer shows that 3 of the 5 key housing indicators are on track towards a full recovery. Home sales and prices are approaching normal levels, but construction and young-adult employment are badly lagging. At the metro level, some housing markets are fully recovered, while others are far from normal.
Tracking This Uneven Recovery
Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is moving back to “normal” based on three indicators: construction starts (Census), existing home sales (NAR), and the delinquency + foreclosure rate (LPS). Today, we’re re-launching our Housing Barometer, which better tracks the uneven recovery with some recalibrations and two additional housing market indicators:
In addition to adding two new measures, we’re excluding distressed sales from existing-home sales because non-distressed sales are a better measure of healthy market activity than overall sales. We’re also using three-month moving averages for the indicators that are reported monthly (sales, delinquency + foreclosure rate, starts, and employment) to smooth out volatility.
For each indicator, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level. We’re also no longer averaging together the “back to normal” levels across different indicators because the average masks huge differences among these indicators. Instead, we are taking a closer look at the recovery of each indicator: three are most of the way back to normal and closing the gap quickly, while two others are stagnating near troublesome lows.
Back to Normal Or Left Behind: 3 in 5 Key Market Indicators Recovering
Of the Housing Barometer’s five indicators, prices and sales are getting close to normal. Delinquencies + foreclosures, while not as close to normal as prices and sales, have improved significantly in the past year. The other two measures – new home starts and jobs for young adults – still have a long way to go:
Which Local Markets are Back to Normal?
Not only are different housing market activities recovering at different rates, the housing recovery is uneven across local markets, too. To track local recoveries, we examine two of the above indicators at the metro level: prices relative to local norms, from Trulia’s Bubble Watch, and construction permits relative to local norms, from the Census. These two measures are strongly correlated: as the scatterplot below shows, in metros where prices are near or above normal, construction permits are also near or above normal.
Of the 100 largest metros, 10 are back to normal or nearly there for both prices and permits. (By “nearly there,” we mean that prices are undervalued by less than 2% and permits are less than 10% below normal.) These include Austin, Dallas, and Houston in Texas; Orange County, San Francisco, and San Jose in California; and Denver, Seattle, Nashville, and the Bethesda, MD, metro areas.
These 10 metros share a couple things in common: they weren’t among the worst-hit markets in the housing bust, and they’ve had relatively strong job growth in the recovery. However, these recovered metros are NOT the markets with the biggest price increases. Among the 10 recovered metros, only one – Orange County – is also in the top 10 for year-over-year price gains, according to the November Trulia Price Monitor. In contrast, some of the markets with the largest price increases, like Las Vegas and Detroit, are still far from fully recovered. Local price increases, by themselves, are a poor guide to whether local markets have recovered: instead, the markets with the biggest price increases in 2013 are those that suffered the biggest price declines after the housing bubble burst.
To sum it up: Trulia’s Housing Barometer shows that the recovery has progressed on most fronts. Non-distressed sales and home prices are approaching normal levels and could reach them in 2014. Delinquencies + foreclosures are also improving, though “normal” is still more than one year away. The red flags are construction starts and young-adult employment, both of which remain closer to recession levels than to normal. The recovery has gone a lot farther for homeowners, who benefit from rising home values, and real estate agents, whose commissions rise with both prices and sales, than for construction workers or young adults looking for jobs. The recovery also looks much better in the San Francisco Bay Area, Texas, and other markets that are back to normal than in wide swathes of the country where normal isn’t yet within reach. Even as the recovery progresses overall, it remains stubbornly uneven.
NOTE: Trulia’s Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (LPS), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the “normal” share of sales that are distressed is 5%; LPS reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble “normal” level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest published data are November for the employment rate; October for existing home sales and delinquency + foreclosure rate; August for new home starts (September and October were delayed due to government shutdown); and Q4 for home prices.
All housing is local – including the price slowdown. Asking-price gains have slowed sharply in Las Vegas, Oakland, Atlanta, and Phoenix, but price increases are accelerating in metros where the price rebound has been more modest.
The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.
Asking Prices Up 1.0% M-o-M in November, Regaining a Bit of Steam
In November, asking home prices rose 1.0% month-over-month and 3.0% quarter-over-quarter. The quarterly increase is the fastest in five months, though still lower than in the spring. Year-over-year, prices are up 12.1% nationally and have increased in 98 of the 100 largest metros.
November 2013 Trulia Price Monitor Summary
% change in asking prices
# of 100 largest metros with asking-price increases
% change in asking prices, excluding foreclosures
|*Month-over-month change is November versus October. Quarter-over-quarter and year-over-year changes are three-month averages. Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.|
The short holiday week isn’t halfway done, but three new data reports have given new signals about the housing recovery.
Yesterday NAR reported the fifth straight monthly drop in pending home sales. Today, however, Census reported a big jump in new building permits, to the highest level in 5 years, and Case-Shiller reported the largest month-over-month increase in home prices since April. What should we make of these mixed signals?
•Some of the weakness in the October pending home sales data was probably due to the government shutdown. Watch next month’s data closely for signs of a rebound.
•The October existing home sales data – released last week – were also down, but the overall number masked a key trend: the continued shift from distressed (foreclosure and short sales) to conventional sales. While overall existing sales rose just 6% year-over-year, conventional sales were up 22% year-over-year.
•The shift from distressed to conventional sales is a key part of the housing recovery. Sales data that combine distressed and conventional sales – like pending sales index and the existing home sales index – understate the recovery in home sales.
•Today’s October 2013 permit data showed multifamily permitting the highest in 5 years, with single-family permits just shy of their 5-year high. This was a strong report for construction. The housing starts data for September and October won’t be released until December 18, however.
•These solid permits data are not just due to monthly volatility. The three-month average for total building permits (i.e., Aug-Oct) is also at a 5-year high.
•The construction recovery is uneven. Permits are now above local norms in metro Boston, NYC, San Francisco, Austin, Houston, Oklahoma City, and San Jose. However, permits are still way below local norms in Atlanta, Phoenix, Las Vegas, Sacramento, Chicago, and Detroit.
•Today’s Case-Shiller report for September showed the biggest month-over-month increase since April for the 20-metro index. The more reliable national quarterly report showed Q3 prices rising slightly faster than in Q2 – and the second-highest quarterly gain since 2005 Q4.
•Price gains are clearly slowing in California. In the rest of the country, though, prices are accelerating in some markets and slowing in others.
•Case-Shiller data show what was happening in the market several months ago. The Trulia Price Monitor shows the current trend: October asking prices slowed slightly, but prices are still rising at a fast pace. We’ll report November’s Price and Rent Monitors next Wednesday, December 4.
Overall, this has been a strong 24 hours for housing data. The broader trend in sales data is better than the pending home sales report appears because of (1) the shift from distressed to conventional sales and (2) some of the drop is probably temporary impact of the shutdown.
Price data show healthy slowing from unsustainable levels earlier this year but no signs of a crash. The best news for the housing recovery, though, is the strong permits data. Construction has been the laggard of the recovery, with starts still 40% below normal (as of August), held back by high vacancy rates and slow household formation. The jump in permits points to more construction activity in the next month or two and more inventory coming onto the market next year.0 comments
Although the recession has forced more young people to live with their parents, demographics – not the economy -- explain why more seniors are living with relatives. The share of foreign-born seniors is rising, and they’re four times more likely than native-born seniors to live with family.
The last few years have seen an increase in multigenerational living. Young adults became far more likely to live with their parents during the recession than before and haven’t really started to move out. On the other side of the life cycle, seniors – specifically adults 65 and older – are also more likely to live with relatives than in the recent past. That means fewer Americans today need to go “over the river and through the wood” to see Grandma and Grandpa for Thanksgiving than they did 20 years ago. (Yes, the original poem is actually “through the wood,” not “woods,” and to grandfather’s house. We’ve been singing it all wrong. Have you?) But the reasons that seniors are increasingly likely to live with relatives are totally different from those that lead young adults to live with their parents.
Why are More Seniors Living with Relatives?
According to the Census (2012 ACS), 9% of seniors live in a household headed by their children, children-in-law, or other relatives (other than their spouse). Another 2% live in a household headed by people they aren’t related to, and 3% live in “group quarters” like nursing homes. The other 85% live in their own home.
Another survey, the Current Population Survey’s American Social and Economic Supplement (ASEC), shows the share of seniors living with their children or other relatives has grown over the past 20 years, from an average of 6.6% over the years 1994-1998 to 7.3% in 2013. These data are volatile year to year, but the overall trend is clearly upward, as the “unadjusted” line in the chart below shows. (Confusingly, different government surveys report seniors’ living arrangements differently. See note at end of post for all the details. But don’t worry: all of the trends and comparisons in this post are based on apples-to-apples analyses.)
Note: based on CPS ASEC 1994-2013, via IPUMS site. See longer note at end of post.0 comments