The Great Recession ended 10-years ago in June. In a new blog, Odeta Kushi, Deputy Chief Economist, First American compared the housing market trends at that time with the current numbers to analyze how far the housing market has come over the past decade.
For the analysis, Kushi studied the housing demand metrics, supply metrics, and homeownership metrics. These were scaled relative to their level at the end of the Great Recession.
"Today’s housing market enjoys much stronger demand than a decade ago, but housing supply has slumped," Kushi observed. "More house-buying power and expanded access to credit, along with a demographic tailwind from millennials aging into prime home-buying age, all bode well for housing market demand. The question is whether there are enough homes for sale to meet this surging demand."
She noted that affordability has improved since the end of the Great Recession largely due to lower mortgage rates and rising household income. In fact, mortgage rates in April were 1.3% lower than those in June 2009. At the same time, consumer housebuying power has increased by 54% over the past 10 years.
Similarly, credit availability has improved by 30% over this period.
As reported by MReport, in a recent episode of The Exchange on CNBC, Skylar Olsen, Economic Research Director, Zillow, had also observed that the fall of mortgage rates gives many “reason to believe” that the current coolness in the market wouldn't last long.
The challenge today, according to Kushi is the lack of supply. She noted that inventory turnover has declined by 16% since June 2009.
"A major reason for the lack of homes for sale is increasing tenure–the length of time a homeowner lives in their home," Kushi said. "In the years following the recession, tenure has rapidly increased and it is currently more than 11 years, compared to just under seven years at the end of the Great Recession."
While building new homes might seem like a natural solution to solve this issue, Kushi noted that for more than a decade, "home building has not kept up with the demand for shelter."
"While housing starts, a leading indicator of new home completions, have doubled since the lows reached at the end of the recession, they remain 33% below their 2000 level," she said.
According to Olsen, slowing home value appreciation was also a concern. “Home value appreciation is slowing down fairly significantly in those expensive markets. The percentage of listings that have price cuts have shot up as the housing market starts to transition.” Olsen said.