'Lean' Housing Market Continues Recovery

The housing market may be cooling off, but experts say it is still recovering, citing strong remodeling activity, the sustained power of buyer demand, and incremental supply increases.

Home sales are cooling off, but so are foreclosure starts, an indicator of housing market improvement. According to Black Knight Inc., foreclosure starts had a 17-year low in June 2018, and mortgage delinquencies are at a decade-low. Furthermore, the share of underwater homes fell 21 percent in the first quarter of this year, and accounts for 4.7 percent of all mortgaged properties. In 2009, the share was at 26 percent, per CoreLogic data.

Builders, for their part, are increasing supply, but slowly, and behind historical norms. "Whatever progress has been made in new home sales since the economic recovery began, recent data makes it clear that builders have been struggling to ramp up new single-family home construction for years," Aaron Terrazas, senior economist at Zillow, tells CNBC. "If building levels had largely stayed near their historic norms and had kept pace with population growth, there would be millions more single-family homes nationwide, and the current imbalance between housing supply and housing demand would not be nearly pronounced."

"I don't think the recovery is over," said Sam Khater, chief economist at Freddie Mac. "Economic growth is still very strong and essentially running at capacity. However, the consistent decline in housing affordability means there are fewer consumers who can afford to purchase a home." The reason the housing recovery isn't over is because demand is very solid, and the price gains are starting to ease. As with all things real estate, however, location is key in this recovery.

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