Housing has made headway in the decade since the onset of the recession, but, according to a new report by Trulia, there is still room for improvement in the recovery.
Approximately 34 percent of homes have values that exceed their peaks from before the recession, the report shows, despite many indicators, such as the S&P CoreLogic Case-Shiller Index, surpassing their own. Based on the lag in recovery, the report estimates 100 percent of homes will hit their pre-recession peaks by September 2025—or in another eight years.
“While these measures are indeed a sign that the housing market has improved since the Great Recession, they are aggregate measures,” writes Ralph McLaughlin, author of the report and chief economist at Trulia, of the indicators. “These aggregate measures use the average changes in sales prices of homes that sell, and thus don’t necessarily capture how the current value of individual homes compare to their pre-recession peaks.”
The rebound, as well, has been lopsided. The majority of homes in metropolitan areas out West, such as Denver, Colo., Oklahoma City, Okla., and San Francisco, Calif., have recovered in value —94 percent of homes in those three cities alone.
Why the robust return to form? The areas with the largest shares of recovered home values—markets like Fort Worth, Texas, and Nashville, Tenn.—either were not hit as hard during the downturn, or have also had the most recovery economically since then. Homes in areas that plummeted in the recession, as such, are less likely to be recovered in value—markets like Fort Lauderdale, Fla., and Las Vegas, Nev., where the bust came knocking first.
The report also dispels the thought that coastal hot spots are the only sites of recovery. When analyzing homes at the zip code level, roughly half of homes in zip codes in flyover states have had their values recover, compared to less than half of homes in zip codes dotting the coasts.
“Outside of major metros, the interior of the country has a higher share of recovered homes than coastal ones,” McLaughlin writes. “Clearly, the idea that only coastal areas have recovered while the Heartland wanes doesn’t hold when looking outside the largest metros.”
The report, in addition, uncovers a possible link between housing recovery and income and population growth, as well as vacancy rate. If incomes and the population rises, essentially, more home values recover, while if vacancy rates rise, less home values recover.
“Housing is what economists call a ‘normal good,’ so when incomes rise, households tend to spend more on housing, which pushes up prices,” writes McLaughlin. “Population growth and vacancy rates also matter. This is because an expanding population puts upward pressure on the demand for homes, which pushes up prices. On the other hand, vacant homes act as excess supply, which tends to put downward pressure on prices, all else equal.”
All told, while the S&P Index and other indicators are a valid gauge of overall trends, they paint broad—and, at times, inaccurate—brushstrokes over housing.
“Across the largest metropolitan areas, the recovery has been limited to a mix of economically booming metros in the West and metros in the South that were relatively unaffected by the housing market downturn,” McLaughlin writes. “Outside of these metros, the recovery looks very different.”