Three out of five Housing Barometer measures are getting close to normal. But the two measures that hitch housing to the broader economy are still struggling, so the job market and housing market aren't helping each other as they should.
How We Track This Uneven Recovery
All Five Measures Improved Year-Over-Year
Four of the five Housing Barometer indicators made good progress over the past year and the fifth - non-distressed existing home sales - eked out a slight increase. But, despite improvement, the employment rate for young adults still hasn't gotten even half of the way back to normal.
Housing Indicators: How Far Back to Normal?
|Now||One quarter ago||One year ago|
|Existing home sales, excl. distressed||80%||64%||79%|
|Home price level||75%||66%||56%|
|Delinquency + foreclosure rate||74%||74%||56%|
|New construction starts||49%||49%||37%|
|Employment rate, 25-34 year-olds||37%||35%||25%|
|For each indicator, we compare the latest available data to (1) its worst reading for that indicator during the housing bust and (2) its pre-bubble "normal" level|
The two lagging Housing Barometer measures - construction and young-adult employment - connect the housing market to the job market. First, housing should help jobs: construction adds to employment not only in homebuilding but also in related industries like furniture manufacturing and home-improvement retailing. Second, jobs should help housing: young adults are more likely to rent or buy, rather than live with others, if they have jobs. In this recovery, young-adult employment and construction are weak - so the virtuous cycle of housing and jobs isn't looking quite so virtuous.
That's not to say that housing isn't doing anything for the economy. Rising home prices make homeowners wealthier, and the more wealth people have, the more they spend. And the decline in defaults and foreclosures have helped stabilize the financial system and hard-hit neighborhoods. As we've seen, home prices right themselves, as undervalued homes attract investors and other buyers, pushing prices back up. In turn, higher prices make defaults less likely.
But as the housing recovery continues, it depends less on the "rebound effect" - this tendency of the housing prices to right themselves - and more on such fundamentals as jobs, income growth, and household formation. These have been slow to improve in this recovery. In particular, the Housing Barometer shows that young-adult employment lags. What's more, new Census data showed that median income has stagnated and household formation is far below normal levels. In this recovery, jobs and housing can't get what they need from each other.
NOTE: Trulia's Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (Black Knight), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the "normal" share of sales that are distressed is 5%; Black Knight reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble "normal" level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest data are from August for the employment rate, existing home sales, new construction starts, and the delinquency + foreclosure rate; and Q3 for home prices.