Housing Market Recovery Remains Unhealthy

Almost all data is showing signs of a better housing market that is leading the way in the economic recovery. While this may be accurate because data appears better than during the crisis, the current housing market recovery remains unhealthy.

When comparing the past with current statistics, the numbers are actually small. Most of the data coming in is showing an increase in improvement when compared to 2008 through 2012. However, the numbers are still not near housing numbers that were present at the peak of the boom.

According to the Commerce Department, new home sales increased 1.5% to a seasonally adjusted annual rate of 417,000 units during March. Compared to March 2012, sales increased 18.5% indicating a clear improvement from last year. However, according to an article appearing in Triblive.com, "By historical standards, however, the 780,000 homes actively under construction in 2012 was awful, the fourth-lowest total since 1945, according to Patrick Newport, an economist with forecaster IHS Global Insight".

The National Association of Realtors reported that existing home sales dropped 0.6% for the month of March due to low inventory. Low inventory is also causing home prices to increase at a rapid pace. FHFA's House Price Index shows that U.S. house prices rose 0.7% on a seasonally adjusted basis from January to February and 7.1% for the 12 months ending in February. With normal refinances skyrocketing in recent years, homeowners who were struggling now have extra cash in their pocket and have put off selling. The lack of inventory is also partially due to underwater homeowners who are holding on until home prices increase enough to make it financially suitable for them to consider selling. Many of these homeowners, who purchased during the boom years and were at risk of defaulting, have been able to refinance through the HARP program which is for underwater borrowers who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009. By refinancing, many reduced their monthly mortgage payments and are now gaining back equity. If home prices continue to increase, many of these homeowners may become interested in selling which could create a substantial increase in inventory that sends prices down again. On top of that, once rising home prices hit a certain point, purchasing for investment purposes, another cause of rising prices, may slow down substantially.

At a time of low mortgage rates, there should be more individuals purchasing homes. However, a large percentage of the potential first time home buyers group are strapped down with student loans, low paying jobs and weak credit. Many have even been unemployed due to the lack of jobs. According to Governor Elizabeth A. Duke's Comments on Housing and Mortgage Markets presented at the MBA Conference in March 2013, "in the early 2000s, about one-third of first-time home buyers under the age of 40 had credit scores below 620, and another one-fourth had scores between 620 and 680. Today, many of these individuals would have a difficult time obtaining mortgage credit." Many of these first time home buyers would be using FHA loans to purchase a home, however, even FHA has made their standards and guidelines stricter which ultimately eliminates young consumers from attaining homeownership.

While there is a housing recovery in progress, it is not following the same patterns of past recoveries where a stronger improvement in jobs was present. At this point, instead of calling the housing market in recovery, it might be more accurately labeled as "in remission".

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