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.
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 improving, still remains high at 6.7 percent. Mortgage delinquencies have fallen to 5.88 percent, nearly half of their peak rate but still higher than the historical average of about 2 percent, Freddie notes.
Home prices still have some room to grow without outpacing income growth, economists say. 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.”
Source: Freddie Mac and “Are We There Yet? Freddie Mac Says Recovery Has a Ways to Go,” Mortgage News Daily (Jan. 16, 2014)
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