Last week brought great news for the housing market—both existing and new home sales reached longtime highs. It appears that housing is on-track and healthily recovering from the 2008 crisis, according to Stan Humphries, chief economist with Zillow.
“Housing is definitely on the road to recovery,” Humphries tells Yahoo Finance. “It’s been a little bit of a see-saw this spring with some months up and some months down but the long-term trend in both existing and new home sales [has] been positive. Home sales are starting to moderate and we are starting to see normal buyers come back into the marketplace.” Normal buyers, Humphries says, means less all-cash purchases and an increase in first-time homebuyers.
A study by CoreLogic, however, shows that this rebound has been largely centered on more expensive homes. CoreLogic finds 15% of homes worth less than $200,000 were underwater at the end of March 2015. Just 6% of homes worth more than $200,000 were underwater during that period. “The recession has been really unequal in terms of its impact on the housing stock,” explains Humphries.
The homes in the bottom third of the housing stock have had a harder time recovering price than homes in the top third. The median value of homes in the bottom third dropped 13% to $101,900 between 2006 and 2015, while homes in the top third fell only 4.5% to $325,800. “Because of that you find that you’re three times more likely to be underwater on your mortgage if you’re in the bottom one-third of the housing stock,” says Humphries. “This is a real problem that creates real inventory problems for that class of housing.”
Given market conditions now and a lack of inventory for low-priced homes, it might seem like a bad time for first-time homebuyers. But Humphries says that homes are still broadly affordable because of low mortgage rates. “Conversely, if you look at renting we are having a real rental crisis in terms of rental affordability in this country. Renting has never looked so unaffordable,” he says.
It’s also a decent market for sellers, as there is a lot more demand than supply right now. Sellers are in the driver's seat for negotiation. Appreciation is still north of 10% in many markets, helping sellers make a profit on their homes.
