Trulia (TRLA) is making the case that the underlying fundamentals of the housing industry are on track, and that only a few components are missing from a full-on charge out of the late winter, whole of spring downturn -- first-time buyers.

Prices, sales, and starts are recovering, and prices are near normal levels, but first-time buyers are missing from the housing equation. First-time homebuyers are still missing from the housing recovery, making up just 27% of existing-home buyers according to the May report from the National Association of Realtors. That’s down a bit both from last month and from last year.

That, they say, is what is dragging down housing.

Trulia notes that home-price levels are 79% back to normal, up from 44% one year ago. Prices should reach their long-term norm relative to fundamentals late in 2014 or early in 2015.

Further, they say, delinquency plus the foreclosure rate continued to drop and is now 74% back to normal, from just 53% back to normal one year ago.

Existing home sales, excluding distressed sales, are 64% back to normal – roughly the same as one year ago and up slightly from 61% last quarter.

Trulia’s Bubble Watch shows prices were 3% undervalued in 2014 Q2, compared with 15% at the worst of the housing bust; that means prices are nearly four-fifths (79%) of the way back to their “normal” level of being neither over- nor under-valued.

New construction starts have reached the halfway mark, at 50% back to normal, boosted by apartment construction. Year-to-date, multi-unit starts are the highest share of overall construction in 40 years.

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On the downside, they note, the employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership, fell back to 35% back to normal, down from 39% one quarter ago.

So what’s holding off first-time buyers?

Jed Kolko, chief economist at Trulia, says would-be first-timers are stuck: rising prices and mortgage rates have reduced affordability before young adults have been able to recover from the jobs recession.

“A full recovery that includes first-time homebuyers is still years away; many young adults still need to find jobs and keep them long enough to save for a down payment and qualify for a mortgage. Until that happens, the clearest signs of recovery will be apartment construction and renter household formation, not first-time home buying,” he says.

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