Bloomberg Writes: One Number to Explain a Confusing Housing Recovery

 

Reading the tea leaves in the housing market can be a confusing task.

Today we learned that pending home sales fell in July. Last week the news was that new home starts are down, too. But at the same time, serious delinquencies have hit a five-year low. For those of you who want a big picture view to gauge what’s going on, Trulia has a number for you: 64 percent. That’s how close the housing website says the market is to being back to normal.

To calculate the all-in stat, Trulia’s chief economist, Jed Kolko, combines three main factors: construction of new homes, sales of existing homes, and homes that are delinquent or in foreclosure. He then sees how far those those stats have come from the bottom of the market to a “normal,” prebubble pace. Existing home sales are the closest to normal, up to 94 percent of the original pace. But builders are putting up new homes at less than half the regular rate. Foreclosures and delinquencies, on the other hand, have fallen enough to make up more than half of the ground they lost in the downturn.

The results put the market in what Kolko calls the third phase of the recovery. The first stage started in 2009, when the sales and construction bottomed out. The second stage began in 2012, when home prices reached their low point. And this third phase, Trulia says, began this spring, when tight inventories loosened and mortgage rates started to rise.

At this point, the main issue holding the market back from fully recovering is household formation, or as Kolko puts it: “When young adults finally start moving out of their parents’ homes.” That in turn would spur the construction and sales of new homes and push the market closer to a full recovery.

Listen, there is no confusion at all. This is how the bear market works. First, a significant leg down (2006-2009) in real estate followed by a rebound (2009-now). The rebound acts as a “Trap” of sorts that reassures investors that the market is much better now and is about to recover. When everyone is sucked in, the trap is set and the market (Real Estate Market in this case) begins a massive leg down.

What you are seeing now and why a lot of people are “confused” is the topping out and a reversal process in the real estate market. In simple terms, watch out below. The US Real Estate Market is about to crater big time over the next few years. Don’t be in it, unless you have to. 

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