The lowest point of the housing bust was characterized by a glut of supply. Homes for sale remained on the market longer, and foreclosed homes and those with mortgages in default added to or threatened to add to this inventory. As a result, prices fell, and construction of new homes fell to extremely low levels.
Recent data shows that construction activity of multifamily housing has recovered to around its pre-bust level, with roughly 300,000 to 400,000 units of new construction beginning each year. These levels were typical through the late 1990s and early 2000s. In contrast, single-family housing construction—even though it has increased from around 400,000 units per year to around 600,000 units per year—is still far below its peak during the boom (1.8 million units) and less than its average during the late 1990s (about 1.2 million units per year).
After swelling from 2.5 million units in 2005 to 4 million units in 2007, the inventory of housing units for sale has fallen to 2 million units, back to its year 2000 level. This means that given the recent pace of home sales, the average time a home spends on the market has fallen from around one year to less than five months.
Even the inventory of foreclosed homes, another source of units for sale, has started to fall in the past year. After 14 quarters above 4.0 percent, the inventory of foreclosed homes is currently 3.6 percent. Boding well for the future, foreclosure starts and the fraction of mortgage holders that are in default have also been falling recently.
The reduction in supply has been accompanied by increases in prices. Home prices grew by about 10 percent over the past year following four years of price declines or stagnation.
While there are many encouraging signs of recovery in housing markets at the national level, there is a good amount of variation in the degree of recovery across the country. Home-price growth has been strongest over the past year in western states and in Atlanta and New York City. A number of factors may be driving this variation.
Local economic conditions and population growth play a role in driving demand for housing. At the same time, states where foreclosures are processed through the judicial system have had much less of a reduction in their stocks of foreclosures than nonjudicial foreclosure states. Nonjudicial foreclosure states are able to process the stock of foreclosed homes faster, effectively shrinking the foreclosure inventory. There seems to be some correlation between recent price growth and the way foreclosures are processed. Additionally, there appears to be higher price growth in the past year in places where prices fell the most from the peak of the boom to the trough.