Has the recovery recovered or is the recovery still recovering? As usual, it depends upon who you ask.
Sam Khater, chief economist with Freddie Mac, believes the recovery is still recovering. “Economic growth is still very strong and essentially running at capacity. However, the consistent decline in housing affordability means there are fewer consumers who can afford to purchase homes.”
Negatives for the housing market in July 2018, on the other hand, added to negative market news from the last several months. Sales of new and existing homes fell in July, the construction of new single-family homes has been flat for a year, mortgage interest rates increased by .5% during the first half of the year and affordability continues to weaken.
Khater argues that the word “recovery” is about more than just buying and selling houses. Recovery is about the overall market and while the overall market is still “too lean,” it’s continuing to improve. Here are some bullet points that underline Khater’s position on continuing improvement:
- Foreclosure starts hit a 17-year low in June and mortgage delinquincies are at their lowest levels in a decade, according to Black Knight. – See another post about foreclosures this week that refutes this statement.
- The majority of homeowners are paying their mortgages on time.
- The remodeling economy of materials and retailers is at an all time high, according to Nino Sitchinava, principle economist with Houzz.
- CoreLogic reports big gains in home equity with an average homeowner gaining +$16,000 in Q2.
- The number of homes in negative equity positions dropped -21% from 3.1M to 2.5M
The National Association of REALTORS® (NAR) doesn’t say the recovery is over but does say that the market is “cooling.” “Prices rose too high, too fast, and the market is hitting a price wall. We know this because price gains are starting to shrink.”
The US Census Department chimes in by stating that new home sales were lower in July than in June 2018 but that new home sales in July 2018 were +12% higher than in July 2017.
Danielle Hale, chief economist with Realtors.com, believes that new home sales would be much higher if builders were building homes at price points buyers could afford. “Demand is still very high but homes are just too expensive.”
Aaron Terrazas, senior economist with Zillow, focused on the connection between new home construction and inventory shortages. With the background of single-family housing starts being 1.1M/ 40 years ago to 350,000 starts/yr in the spring of 2009 to today’s 850,000 starts/year, “…if building levels had largely stayed near their historic norms and had kept pace with population growth, there would be millions more single-family homeowners nation-wide today. And the current imbalance between housing supply and demand would not be nearly as pronounced.”
Even the Federal Reserve Board is concerned about what it calls “the anemic growth” in new home construction, according to The Fed’s minutes on August 1, 2018. “In contrast to other sectors, residential construction activity appeared to have softened somewhat, possibly reflecting decaling home affordability, higher mortgage rates, scarcity of available lots in certain cities and delays in building approvals.”
When it’s all said and done, Khater is sticking to his guns by saying, “…the recovery is slowing, but it’s not over. More supply is hitting the market and sales will grow in response to that supply. Consumer credit scores are strengthening, There is a huge generation (Millennials) who are aging into home buying years. There is a huge generation (Boomers) downsizing into active adult communities and urban condominium developments…Homebuilders are still revering with increasing starts, sales and profits. And though there is a new affinity for renting, renting can fuel home construction and the overall housing economy as well.”