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4 Keys Identified for a Full Housing Recovery

Daily Real Estate News | Friday, January 17, 2014

In order to have a fully recovered housing market and economic recovery,
economists point to the need for four positive indicators:

1. A healthy job market with low stable unemployment;
2. Mortgage delinquencies that have returned to historical averages;
3. Home prices consistent with an affordable mortgage payment-to-income
ratio; and
4. Home sales that are in the range of historical norms.

So, is the housing market inching closer?

Freddie Mac’s U.S. Economic and Housing Market Outlook for January takes a
look at how the housing market is performing among these four indicators.
Economists note that the unemployment rate — while inching down — still
remains high at 6.7 percent. Meanwhile, mortgage delinquencies have fallen
to 5.88 percent — nearly half of their peak rate but still higher than
the national average of about 2 percent, Freddie notes.

Home prices still have some room to grow without outpacing income growth,
economists say.

“From 1999-2006, mortgage payments on a hypothetical 30-year fixed-rate
mortgage would have increased by 50 percent more than income growth,”
Freddie Mac notes in the report. “Currently, payment-to-income ratios are
only 60 percent of the level we had in 1999, suggesting room for continued
housing growth.”

Finally, home sales have risen over the past two years but remain below
levels from a nearly a decade ago. Home sales, historically, average a
rate of about 6 percent of the housing stock every year. They dropped to 4
percent during the housing crisis. Economists are predicting a 5.7 percent
pace in 2014.

“As we start 2014, the housing recovery continues its steady pace,” Frank
Nothaft, Freddie Mac’s chief economist. “House-price gains will likely
moderate from last year’s pace but rise about 5 percent in national
indexes. Home sales, as well as other key indicators, continue to trend in
the right direction, although in some markets we are seeing the sales
recovery strengthen while many others remain weak.”