The U.S. housing market has come a long way in the last five years, when the credit crisis popped a housing bubble that had grown quite large. After hitting a low point in 2011, home sales and prices have begun to rise again.
In August 2013 new home sales rose 7.9%, according to a U.S. Census Bureau report. Sales of existing homes rose to the highest level in six years, according to the National Association of Realtors. The median sale place was up 14.7% year-over-year.
Hard to measure
But does the above constitute a true housing recovery? The experts we talked to take a mostly cautious approach on the question. Hans Isakson Professor of Economics University of Northern Iowa, notes that there is no national housing market, so it’s hard to measure.
“What happens in one city does not necessarily happen in other cities,” Isakson said. “Some housing markets may have fully recovered, but not all of them.”
Robert A. Simons, Professor of Urban Studies at Cleveland State University-Ohio, hasn't seen anything to suggest the market has recovered.
“It's bouncing along the bottom,” he said. “Some regions are partly back – say 25% to 50% – but others are more like zero to 15% recovered.
But Susan Wachter, the Richard B. Worley Professor of Financial Management at the Wharton School, believes the recovery is real and sustainable.
“The spike in mortgage rates to date will not derail the recovery,” she said. “Prices are likely to continue to recover and so will starts and sales. But note that both of these are from historically low levels. The question is how robust will the recovery be?”
William Wheaton, an economics professor at MIT, says home prices do, indeed, have more room to run to get anywhere close to their bubble levels. He also says it is useful to remember that the market is bucking what he calls “percentage math.”
“When prices go from 100% to 66% – that’s a 33% decline,” he notes. “To recover it takes a 50% rise!”
In recent months, as the bond market anticipated the gradual elimination of the Federal Reserve's “QE” policy of aggressive bond purchases, mortgage interest rates have moved higher. But all of our experts note rates remain near historic lows. The bottom line – rising rates may slow the market's recovery a bit, but not that much.
“Every basis-point increase in interest rates increases the cost of housing and reduces effective demand, to a degree,” said Kerry Vandell, Director of the Center for Real Estate at University of California – Irvine.
But Vandell says that's not necessarily a bad thing, to the extent that rates are excessively low and could lead to unsustainable home ownership and unstable prices. So some slowing might be healthy.
“Sales will not – and should not – remain at record levels; such a condition is a sign of an overheated market,” he said. “I believe in a 'Goldilocks' market – not too hot, not too cold – that exhibits moderation in all its metrics.”
Keirnan “KC” Conway, Chief Economist USA for Colliers International and a former real estate analyst at the Federal Reserve, believes the National Association of Home Builders’ Improved Market Index is the best indicator of the health of the housing market.
“The NAHB/First American Improving Markets Index (IMI) tracks housing markets throughout the country that are showing signs of improving economic health,” he said.
Markets making the list must show employment growth, house price growth and single family housing growth. August was the eighth straight month that 70% of U.S. metros made the list.
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