Bubble Watch: Trulia’s “Housing Barometer” Heralds Good News

by Alonzo Turner

The market continues its ascent to a full recovery, but one thing in particular is standing it its way, according to Trulia’s latest Housing Barometer.

For more than two years now, Trulia has charted the recovery of the national housing market through its Housing Barometer, which factors in a number of industry indictaors.

Most of Trulia’s measurements are tracked month-to-month, but the listing site’s “Bubble Watch,” which follows home prices, is updated quarterly. The most recent Bubble Watch shows prices were three percent undervalued in 2014 Q2, putting them 79 percent of the way back to normal levels, which Trulia defines as being neither over nor undervalued. Quarter-to-quarter, prices rose 11 percent.

The Whole Picture

Trulia’s Housing Barometer measures five separate factors that, apart from home prices, include delinquency and foreclosure rate, existing-home sales not including distressed sales, new construction starts and the employment rate for persons 25-34-years-old.

  • Delinquency and foreclosure rates increased from 63 percent to 74 percent on Trulia’s barometer, an 11 percent increase year-over-year.
  • Existing-homes sales, excluding distressed sales, increased from 61 percent to 64 percent. However, the gains only brought levels to where they were exactly one year ago.
  • New construction starts increased from 50 percent to 45 percent, a nine percent increase year-over-year.
  • Employment rate of persons 25- to 34-years-old decreased from 39 percent to, now, 35 percent. Still, levels remain five percent above the same time last year.

What’s Holding Us Back?

The indicators tracked and put forth by Trulia describe a housing market that is inching its way towards a full recovery. Four of the five indicators saw positive movement this most recent quarter, and Trulia Chief Economist Jed Kolko points out that slowing home price gains are actually indicative of a healthy and more sustainable market.

However, while the market is recovering, a distinct lack of first-time homebuyers is significantly hindering the rate of progress. According to the National Association of Realtors’ May report, first-time homebuyers made up just over one-quarter of existing-home buyers.

Kolko claims that because of rising prices and mortgage rates, housing affordability is suffering, which is, in turn, diminishing the number of first-time homebuyers entering the market. The solution to this lingering problem, as the economist suggests, is young adults finding and, furthermore, keeping jobs. But that is easier said than done.

“A full recovery that includes first-time homebuyers is still years away,” he says. “Until that happens, the clearst signs of recovery will be apartment construction and renter household formation, not first-time homebuying, as young adults move from their parents’ homes into their own rental units.”

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