Economists from Freddie Mac have pointed to four positive indicators that need to be fulfilled if we're to say that the housing market has reached a full recovery. Needless to say, these are all pretty obvious, but they're worth reviewing amid all the talk of 2014 finally being the year that things get back on track.
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 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."