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Can housing reach the fourth stage of recovery?

The market remains stuck in third gear

August 27, 2013

Recovering from a housing crisis is similar to any other type of recovery in that it comes in stages: four stages to be exact.

Trulia outlined the four stages of a complete housing recovery this week. The real estate website claims the U.S. is now in its third stage of recovery, which is a situation that occurs when inventory finally expands and mortgage rates suddenly rise.

During this stage, prices also begin to slow.

The looming question is will housing reach the critical fourth stage of recovery, which only occurs "when young adults move out of their parents homes and boost overall household formation," Trulia wrote.

Reaching the fourth stage of recovery may prove more difficult since it's dependent on the strength of the overall economy. But without it, construction will not get the boost needed to make the recovery complete.

If that were to happen, construction and home sales could easily pick up. 

"For now, though, construction and new home sales remain far below normal levels, yet prices and existing home sales have returned to near-normal,” Trulia writes.

Trulia tracks the housing recovery by evaluating construction starts, existing home sales, delinquencies and foreclosures each month. Using this data, the website is able to compile a monthly Housing Barometer report.

For the month of July, Trulia concluded that the housing market is now 64% back to normal, which is the highest level on record since the recession.

The delinquency and foreclosure rate is now down to 9.23%, while existing-home sales are at their second highest level in six years. Construction starts also increased to 896,000 in July, up 6% from June, Trulia said.

Still, a full recovery is contingent on the young demographic, and this group is showing no signs of moving on just yet.

Click here to read Trulia’s full housing barometer report for the month of July.

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