By Brian Davis
The news is bright rather than blight, as the real estate market adds some spring to its step.
Foreclosures in February dropped to the lowest level since September 2007, to 45,038 completed home repossessions according to RealtyTrac. This marks an 11% drop from January and a 29% drop from February last year, which is all excellent news for a real estate recovery that's starting to hit its stride. While the foreclosure rate is still twice what it was in 2005, the foreclosure wave is clearly ebbing back out to sea.
Fueling the drop in foreclosures is the strengthening job market. February's unemployment rate dropped to a four-year low of 7.7% - far from perfect, but also far from the 10% that the U.S. nudged in the Great Recession. Also falling was the four-week moving average for new unemployment claims, which dropped to a five-year low.
The median U.S. home sales price sat at $192,000 in February, up 18.8% year-over-year from $162,000 according to Zillow. Private housing starts were at a rate of 917,000/year in February, which is 27.7% above the February 2012 rate of 718,000/year.
That said, not all markets are created equal. The housing collapse and subsequent beginnings of recovery were kinder to the larger, more glamorous urban areas and have left many rural areas and post-industrial cities with shrinking populations (see our article on demographic shifts and their effect on local markets). It remains to be seen how and when the population swing will equalize.
The credit markets themselves prove a mixed bag. On the public side, FHA-insured mortgages are about to become substantially more expensive on April 1, in a move that will largely hurt sub-prime (read: lower-income and lower-credit) and first-time homebuyers, and will raise the bar for entry into homeownership. But conventional loans with private mortgage insurance (which are typically available for higher-income and higher-credit borrowers) are growing in popularity and availability, with lower down payments being required. Interest rates have been low for ten years, so most of the juice has already been squeezed from the "refinance boom," leaving purchase mortgages an area of opportunity for mortgage lenders (which means lenders are more aggressively accepting them).
"The increase in low down payments is reflective of first time buyers coming off the sidelines and entering the market," says Craig Strent, who helms Apex Home Loans of Bethesda, Maryland. "We're going to see more of this trend in the next couple of years as the economy improves and renters start to once again see the benefit of buying over renting. FHA has become more expensive and the mortgage insurance companies are the beneficiary of that, which is really not a bad thing as it means the private market is insuring the lower down payments rather than the government."
One statistic that proves both fascinating and curiously empty is the now-complete recovery of American household wealth, or the cumulative net worth of U.S. households. At its peak before the Great Recession, U.S. household wealth stood at a total of $67.4 trillion, which subsequently plummeted to $51.4 trillion in early 2009, and had climbed back to $66.1 trillion at the end of 2012. Economists agree that by the end of the first quarter of 2013, the U.S. will have surpassed the $67.4 trillion peak, but with the unemployment rate still at 7.7% and median home prices still 14.7% below their 2006 peak, many Americans do not feel as well-off as they were pre-Recession.
Total American wealth has recovered largely due to a resurgent stock market, which has leapt more than 120% since its bottom four years ago in March 2009. But roughly 80% of all American-owned stocks are owned by the wealthiest 10% of Americans, which means that while everyone felt the pain of the Great Recession, most of the lost wealth has re-coagulated at the top.
Real estate values, which reflects the middle class's largest assets, have made gains but still have a long climb back to pre-Recession levels. The real estate outlook in America is optimistic, and the average American will breathe easier as real estate values continue to go through the predictable upward spiral of low inventory, followed by holdout sellers becoming rightside-up on their mortgage and listing homes for sale, followed by further credit loosening, followed by interest rate hikes and stabilization.