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Housing: Picking Up the Pieces

In October of 2007, when the Dow Jones Industrial Average soared above new highs, housing was headed in the opposite direction. An historic boom in home sales, spurred by often questionable and more often reckless mortgage lending, was imploding from within. Home building, which had soared well above any possible demand, was crashing.

Existing home sales, which peaked in 2005 at just over seven million, had fallen to an annual rate of 4.43 million by the fall of 2007. Today sales are surging back, but just barely, with January's numbers coming in at a seasonally adjusted annual rate of 4.92 million, according to the National Association of Realtors. The difference today is that supplies of homes for sale are running extremely low. In 2007, supplies were higher and were about to surge due to the coming foreclosure crisis.

(Read More: Why Big Houses Are Coming Back)

Today's low supplies are pushing prices higher quickly. Home prices surged over 6.8 percent annually in December of 2012 on the S&P/Case Shiller home price indices, but they are still 30 percent off their peak of July of 2006. In the fall of 2007, they were dropping like a brick.

That, of course, led to the fall of everything else.

Zigy Kaluzny | Stone | Getty Images

As for home building, which had surged to a peak of just over two million housing starts earlier in the decade, by October 2007 builders were starting about half that at 1.2 million. Today, while coming back, starts are still at about 890,000 annualized. Builders are seeing more demand, and new orders for the big public builders are back at least 30 percent from where they were a year ago, but demand is far from what it once was.

Today, far more Americans are renting. In fact, all of the latest household formations, according to the U.S. Census, are in rental units. The home ownership rate, which reached a high of just over 69 percent in 2004, stood at 67.8 percent in the fall of 2007. Today it continues to fall, now down to 65.4 percent.

(Read More: Best US Housing Markets for Buyers and Sellers)

Perhaps the biggest difference in today's housing market from 2007 is in mortgage rates and activity. In October of 2007, the average rate on the 30-year fixed mortgage was 6.38 percent. Today it is nearly half that at 3.67 percent. In turn, it is a tale of opposites. Refinance volume today is twice what it was in 2007, while mortgage applications to purchase a home are about half what they were.

(Read More: Soaring HousingStocks in Perspective)

In October 2007, the housing market was in the direct path of a massive foreclosure storm. Today, it is still picking up the pieces, with 5.3 million homeowners either delinquent on their mortgages or in foreclosure, according to Lender Processing Services. The good news is that the numbers are coming down, but the clean-up is far from over.

(Read More: How We Got Here, Where We're Going)

—By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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