One Man’s Opinion: Will The Housing Market Recover In The Next Three Years?

Ulli Housing Market Contact

The US housing market continues to be on the mend and 2012 may go down as the year when housing prices came back to life. Trulia Inc’s Jed Kolko says the numbers will continue to improve and the latest Case-Shiller number seems to back up his claim, as housing prices across 20 cities rose the most in two years in November.

But we are still only half-way back to normal in housing recovery and that’s still a long way from normal, Jed noted. The housing market really bottomed sometime in 2009. That was the low point for sales, construction, delinquencies and foreclosures and it has taken us three years to get even half-way back to normal. But that’s still lot better than anyone thought we would be by the end of the year, he added.

Asked to define normal, he said when he looks at normal, he looks at historical normal before the bubble and the bust. Of course there was no specific moment when the housing market was normal, but it certainly wasn’t normal in 2005-2006 as prices were incredibly high and there was more construction than the markets could absorb.

Asked if the housing market between 1999 and 2003 could be termed as normal by looking at the growth-rate during that period of time and then extrapolating them to find out where we should be today theoretically, Jed said before the bubble and the bust, the major indicators like construction and sales tended to be more stable than what has been seen in the last decade.

Nobody knows for sure when the housing market will settle, but it’s pretty safe bet that they will end up in the low five millions in terms of sales and roughly a million-and-a-half in new constructions, which we are not yet close to, he observed.

Asked if that’s sort of “begging the question” since between 1999 and 2003 we were in the middle of the high-tech bubble that made people feel artificially wealthy and they pledged their stocks to make home down payments, Jed said he doesn’t look at just a few years before the bubble-and-the-bust, but many years before the bubble to decide the “normal”.

That’s when we see sales, construction and other measures going back to other long-term norms and that’s what we are comparing to where we are today to, he noted.

Asked if he’s taking into account the multi-family boom that’s going on because lot of people feel we won’t go back to home ownership as people would prefer renting and that’s why multi-family construction is booming, Jed said home-ownership has fallen from about 69 percent from the height of the bubble to about 65 percent now.

It’s expected to go up somewhat, if not to pre-bubble levels, because young adults are currently not settling on their own but living with parents or room mates. But 20 some-things won’t stay with there parents for ever and we are seeing some of them forming households and that will result in home ownership going up a bit from where it is today, he added.

You can watch the video here.


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