The housing recovery is in third gear, but it still has a ways to go before shifting into fourth and going full speed ahead.

That's the analogy recently suggested by Trulia Chief Economist Jed Kolko in taking a look at where the housing market is. He sees it as in the third phase of recovery, where home sales are at near-normal levels, but first-time buyers have yet to return in large numbers.

According to Trulia's "housing barometer," the housing market was 64 percent of the way back to normal in July, based on a combination of three factors. The barometer looks at activity in those areas - new home construction, existing home sales and the delinquency and foreclosure rate - in relation to more typical levels to see where the market is at.

Home sales near normal

Home sales are almost fully recovered, with July's annual rate of 5.39 million reported by the National Association of Realtors, compared to a "normal" level of 5.5 million. New home construction continues to lag, with the Census Bureau reporting an annual rate of 896,000 in July, compared to a normal rate of 1.5 million. Foreclosures and delinquencies also remain relatively high, at a current rate of 9.23 percent of mortgaged homes in July, according to Lender Processing Services, compared to a normal rate of 5.25 percent.

Averaging how far the three have come since their worst figures of the recession produces the barometer reading of the housing recovery.

Kolko says the third phase of the housing recovery began last spring, as mortgage rates began to rise and the inventory of homes for sale bottomed out, both after reaching historic lows. The initial steep climbs in home prices have begun to slow, he said, and home prices are only slightly undervalued, he said.

Young buyers the missing piece

The fourth phase of recovery, he said, will depend on young people moving out of their parent's homes or group living arrangements to spur the formation of new households, which spur new home construction and sales, he said.

The first phase, according to Kolko, was when home sales and home construction bottomed out in 2009, and the second phase began in 2012 when home prices began to turn around.

Published on August 27, 2013