Trulia’s Chief Economist continues his monthly roundup of new construction starts, existing-home sales and the delinquency-plus-foreclosure rate to see how far away we are from a normal housing market.
What does a “normal” housing market look like, and how far away are we? To figure this out, each month Trulia’s Housing Barometer summarizes three key housing market indicators: new construction starts (Census), existing-home sales (NAR) and the delinquency-plus-foreclosure rate (LPS First Look). For each indicator, we compare this month’s data to (1) how bad the numbers got at their worst and (2) their pre-bubble “normal” levels.
March data, released over the past few days, showed:
—Construction starts slipped in March. The decline in annualized starts from 694,000 to 654,000 pushed starts from 21% of the way back to normal in February down to just 17% in March.
—Existing home sales also slipped, from 4.60 million to 4.48 million. Home sales fell from 48% of the way back to normal in February to 41% in March.
—The delinquency + foreclosure rate improved. (Remember, on this measure, lower is better.) In March, 11.23% of mortgages were delinquent or in foreclosure, versus 11.70% in February, which means that this measure improved from 32% back to normal in February to 37% in March. As we learned from Truila’s December 2011 consumer survey, this is key for consumer confidence: 47% of Americans said fewer defaults and foreclosures would give them confidence that the housing market is getting back on track – more than any other indicator of recovery.
Averaging these three back-to-normal percentages together, the market is now 32% of the way back to normal. That’s a bit lower than in January and February, when the market was 34% of the way back to normal, but still higher than it was in 2011. In fact, the market was only 23% of the way back to normal this time last year.
Bottom Line: The housing recovery is progressing, though it’s taken one step backwards after a few strides forward.
Trulia's Chief Economist takes a monthly look at new construction starts, existing-home sales and the delinquency-plus-foreclosure rate to see how far away we are from a normal housing market.
On the long road of housing recovery, we’re all kids in the back seat wondering: are we there yet? After years of bad news about the housing market, it’s hard to remember what “normal” looks like.
This month Trulia kicks off the Housing Barometer, a quick review of three key monthly indicators of housing recovery: new construction starts (Census), existing-home sales (NAR), and the delinquency-plus-foreclosure rate (LPS). For each indicator, we checked how bad the numbers got at their worst, and then looked even further back in time, before the bubble, to remind ourselves what “normal” looked like. We’re not trying to predict what the new normal will be in the future – we’re just eyeballing the past in order to put this month’s housing data into context.
Here’s what the February data, released last week, show:
— Construction starts: 22% of the way back from their low in Apr 2009 toward their normal level.
— Existing home sales: 47% of the way back from their low in Nov 2008 toward normal.
— Delinquency + foreclosure rate: 32% of the way back from their high in Jan 2010 toward normal.
To get to a single number that’s easy to remember and track over time, we just average these three percentages together. If all three indicators were at their worst, the barometer would be at 0%; if all were back to normal, the barometer would be at 100%. The February 2012 data puts us at 34%: in other words, the housing market is one-third of the way back to normal.
So, are we there yet? No. We still have a long way to go. How long will it take us to get there? Using the same method and measures, one year ago the market was 16% of the way back to normal, which means we’ve ticked up 18 points in the past year. If we continue to drive at this same pace of 18 points a year, we’ll get from 34% today to 100% in late 2015. Kids, sit tight…it’s going to be awhile.
According to Trulia’s Housing Misery Index, next week’s Arizona and Michigan primaries could be the last we hear from candidates on housing until California votes in June.
The housing crisis hurt some states especially hard. In those states, like Florida and Nevada, the Republican presidential candidates couldn’t ignore housing. But in states that weathered the housing crisis better, the candidates won’t spend precious money and attention on housing policy.
To see which states are suffering most, we created a Housing Misery Index. Like the original Misery Index, which adds together unemployment and inflation, our Housing Misery Index takes two important indicators of a state’s housing market and simply adds them together. For every state, we add (1) the percentage change in home prices from the peak until today, from FHFA, and (2) the percent of mortgages either severely delinquent or in foreclosure, from CoreLogic.
Why these two indicators? First, big price drops lead to more underwater borrowers and less household wealth, which hurt the housing market and hold back economic recovery. Second, defaults and foreclosures damage consumer confidence in the housing recovery, and foreclosures cause pain not only for people who lose their homes but also for their neighbors.
States That Are Most Miserable When It Comes To Housing
|State||Housing Misery Index|
Note: Index is sum of peak-to-2011Q4 price decline (FHFA) and 2011Q4 delinquency (90+ days) plus foreclosure rate (CoreLogic). Top ten states ranked by the housing misery index are shown.0 comments
In light of today’s landmark robo-signing settlement, Trulia’s Chief Economist takes a deeper dive into what really matters.
The robo-signing settlement is the latest – and potentially the largest – piece in the U.S. housing policy puzzle. Even though it’s partly punishment for banks’ wrongdoing, it is also another answer by the government to the question of how it can help the housing market.
Our own housing policy survey last December showed strong bipartisan support for two key elements of the robo-signing settlement: refinancing by underwater homeowners (82% of Democrats, 69% of Republicans), and loan modifications to reduce principal balances (74% of Democrats, 61% of Republicans).
With the robo-signing settlement, as with any housing policy, I look at three questions:
1) Is it big or small? Relative to other housing policies, it’s big. It calls for much more money for loan modifications than HAMP has cost so far, and it could mean money or relief for close to two million current and former homeowners. HAMP and HARP have each helped roughly one million homeowners so far. But relative to the housing crisis, it’s small. The loan modifications could yield tens of billions in principal reductions for one million homeowners – but that’s a sliver compared with the 11 million homeowners today who are over $700 billion underwater. And the cash compensation of $1,500-$2,000 for up to a million people who lost their homes will hardly make them whole.
2) Who pays? Usually it’s good politics to keep quiet about who pays for housing policy, but not with the robo-signing settlement. It’s good politics for the government and the attorneys-general for everyone to know that the banks are paying for their robo-signing sins. In contrast, most housing policy announcements hide – or at least don’t broadcast – who is paying, whether it’s investors who implicitly bear the cost of refinancing or taxpayers who implicitly bear the cost of many other policies.
3) Does it reward risk-taking or bad behavior? Delinquency is a disqualification for refinancing but is almost a requirement for getting a principal reduction. The largest piece of the robo-signing settlement is for principal reduction for borrowers who are “either delinquent or at imminent risk of default.” This is opposite of the refinancing rules laid out in HARP and the State of the Union address, which require borrowers to be current on their payments because that shows they’re “responsible.” So much for a coherent message from the government to homeowners about moral hazard. This issue could be fuel for election debates on housing policy: Republicans are much more bothered by rewarding bad behavior than Democrats are. In our December survey of consumers, 61% of Democrats agreed that “helping people keep their homes is the right policy even if it helps some undeserving homeowners,” but only 38% of Republicans agreed.
Ahead of next week’s Florida primary, Trulia’s Chief Economist weighs in on why housing matters so much to the remaining Republican presidential hopefuls.
Republican presidential candidates have kept housing on the back burner – until now. Next Tuesday’s Florida primary is moving housing front-and-center. Bold new proposals? Don’t be silly. (Hey, I’m an equal-opportunity critic – I said the same about Obama’s State of the Union.) But Romney did hold a housing roundtable, and the candidates are using housing as a scoop for slinging mud at each other. At least that’s something.
Why does the Florida primary thrust housing into the limelight? Four reasons:
1) The housing bust took Florida down.
Prices in most of Florida have fallen by at least 40% since their peak. Along with Nevada, Arizona and inland California, Florida was ground zero for the housing bubble, and now its residents are deep underwater.
2) Florida is in foreclosure purgatory.
It takes more than two years for homes to go through the foreclosure process in Florida, longer than any other state except New York and New Jersey (which have far fewer foreclosures to begin with). That means 14.0% of Florida loans are stuck in foreclosure, compared with 6.3% in Nevada, 3.2% in Arizona, 3.2% in California and 2.7% in Michigan, according to LPS. This keeps Florida’s housing market in limbo and prevents Florida from benefitting from a plan to sell government-owned homes to investors after a foreclosure is complete.
3) Searches and prices are bubbling.
Despite the bust and the foreclosure backlog, demand is stirring in Florida. Our Metro Movers Index shows that far more house hunters are looking to move to Florida – especially to North Port-Bradenton-Sarasota, Fort Lauderdale, Cape Coral and West Palm Beach –than they are looking to leave. Thanks, baby boomers and investors. And prices rose more than 2% in the third quarter of 2011 in West Palm Beach, Fort Lauderdale and several other Florida metros.
4) What happens in Florida doesn’t stay in Florida.
Florida is a national housing story. One-third of all the searches for Miami homes on Trulia.com are from people living more than 500 miles away. What’s more, Chicagoans and New Yorkers can’t seem to get enough of Florida. Three of the top 10 long-distance search destinations from Chicago are Florida metros, as are five of the top 10 search destinations from New York. You or someone you love cares about Florida.
The Florida housing market represents the worst of the bubble and hope for recovery. Let’s hope the Republican candidates have something to say about it, because Florida voters will.