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8 HOUSING, ECONOMY STUCK IN CATCH 22 On the one hand, the housing market is, by most indicators, edging back toward normalcy; but on the other hand, recovery is snagged by a paradox: In order for housing to get better, the economy needs to heal, but the economy can't fully heal without a stable housing market. According to the latest Trulia Housing Barometer, while home prices, sales, and delinquency rates are almost of the way back to normal, new construction starts and a poor employment rate among young adults are snagging full economic recovery. However, all five indicators have improved year-over-year, if slightly in some areas. Existing home sales, excluding distressed sales, are the most encouraging stats at the moment. ese, according to Trulia and the National Association of Realtors, were 80 percent back to normal in August. at's up from 64 percent in the previous quarter and 79 percent from a year ago. Trulia's Bubble Watch also showed that prices were 3.4 percent undervalued in the third quarter, which is a marked improvement over the 13.5 percent undervaluation at the worst of the housing bust. at means prices are three-fourths of the way back to normal. Delinquency and foreclosure rates were also much improved. According to Trulia and Black Knight, the national delinquency and foreclosure rate was 74 percent back to normal in August— the same as one quarter ago and up from 56 percent one year ago. Trulia's chief economist, Jed Kolko, said that with the share of mortgage borrowers with negative or near-negative equity dropping, the default rate should continue to drop. Where the trouble lies is in new construction starts, which are not even halfway back to normal, and employment among millennials, which is faring even worse. ough new starts are up from a paltry 37 percent a year ago, they're still only 49 percent back to normal, according to Trulia and the U.S. Census. And according to Kolko, household formation looks too weak to support more single-family homebuilding. Most distressing is the employment rate for young adults. e barometer showed that as of August, 75.7 percent of adults age 25 to 34 are employed. is is just 37 percent of the way back to normal. "Because young adults need jobs in order to move out of their parents' homes, form their own households, and eventually become homeowners, the housing recovery depends on millennials finding work," Kolko said. at's not to say, however, that housing isn't doing anything for the economy. Rising home prices make homeowners wealthier, and the more wealth people have, the more they spend, Kolko said. In addition, the decline in defaults and foreclosures have helped stabilize the financial system and hard-hit neighborhoods. "As we've seen, home prices right themselves, as undervalued homes attract investors and other buyers, pushing prices back up," he said. "In turn, higher prices make defaults less likely." But as the housing recovery continues, it depends less on the rebound effect—the tendency of housing prices to right themselves— and more on such fundamentals as jobs, income growth, and household formation. "In this recovery, jobs and housing can't get what they need from each other," Kolko said. FORECLOSURES DOWN, BUT DELINQUENCIES UP Nationwide foreclosures are down both monthly and annually, but mortgage loan delinquencies are up month-over-month in August, according to the Black Knight Financial Services Mortgage Monitor released earlier in the week. In its August 2014 data summary included in the report, Black Knight indicated a nationwide foreclosure inventory rate of 1.80 percent, meaning that 1.80 percent of all residential mortgage loans were in some state of foreclosure in August. is number represented a decline of 2.80 percent from July and 33 percent from August 2013. Black Knight also reported the number of foreclosure starts in August declined by 10 percent from July and by 24 percent year-over-year. e number of nationwide foreclosure starts has dropped from about 107,000 in August 2013 to about 81,000 in August 2014. A foreclosure start is defined as "any active loan that was not in foreclosure in the prior month that moves into foreclosure inventory in the current month." e mortgage loan delinquency rate was reported at 5.9 percent for August, according to Black Knight's report, meaning that 5.9 percent of all mortgage loans in the nation were delinquent that month. A delinquent loan is defined as one that is 30 or more days late on a payment. e percentage of delinquent loans has dropped from 6.20 percent in August 2013, but experienced a 4.68 percent increase from July after an up-and-down year. It was the fifth time in the last 12 months the delinquency rate experienced a month-over- month increase, according to Black Knight. e nation's serious delinquency rate, which is the percentage of mortgages that are either 90 days late on their payment or in foreclosure, dropped slightly from 4.10 percent in July to 4.05 percent in August. e serious delinquency rate has been declining slowly but surely each month for 11 months after a slight uptick from 5.22 percent in August 2013 to 5.26 percent in August 2014, according to Black Knight. Seven states saw an increase in REO activity in Q3 2014, led by Maine (24 percent), Maryland (13 percent), and Oregon (13 percent), according to RealtyTrac. KNOW THIS

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