Nationally, home prices were up a little over 5% last year, and Fannie Mae Chief Economist Douglas Duncan expects about a 4.5% average increase this year.
Overall, in spite of the challenges, there seems to be a sense of optimism in the market.
"I think the optimism is reasonable," Duncan says. "For people who are credit qualified -- and that's the critical issue -- if they have good credit, and they're interested, in most markets they'll be able to find something that will suit their needs."
Duncan says that while the real estate industry lost a little ground in home sales last year as sales softened due to a spike in mortgage rates, this year should see a bit of improvement.
"We think 2015 will be up 5 to 6% -- that means it will be higher than 2014 and 2013, but we think that those folks who are looking for a real breakout year are probably going to be disappointed," he adds.
The spring housing market
Susan Wachter, professor of real estate and finance at Wharton, has a similar outlook and expects single-digit price appreciation. The allows sellers to get sizable returns but lets buyers wade into the market at reasonable prices.
"Despite the fact that housing prices have increased, in many markets they're still below where they were at the peak in 2006," agrees Susan Wachter, professor of real estate and finance at Wharton, expecting single-digit price appreciation. "I do see prices continuing to increase at a moderate pace, certainly not the pace of a year or so ago. And I do see construction activity across the board, not simple multi-family but also single family -- I see it coming back, but slowly."
That said, the housing recovery will be slow-going; Wachter expects housing growth to lag the overall economy.
"It doesn't yet have the big engine of growth behind it, which is the three million or so households who are missing," she said.
As such, Wachter is looking for an uptick, but not a surge in real estate sales this spring.
"I think that many buyers will be coming out," she says. "The economy has been improving, consumer confidence rising, the stock market essentially at an all-time high. I do anticipate buyers to check the market out. The key choke point is the inventory. Are we going to have enough inventory to satisfy the market?"
Location, Location, Location
Of course, the extent of buying fanfare really depends on the market.
"There has been a great deal of multiple offers and bidding up properties," says Sue Brodie, with 30 years in the real estate business in Seattle. Residential listings are on the market for an average of 30 days, she says, but in some areas it's less than seven days.
The fastest she's seen a house sell?
"Oh, same day,” she tells MainStreet. “People have been waiting for either that neighborhood, that price-point, or that area near a school they want. So, as soon it becomes available their agent alerts them. They're on kind of an on-call basis."
Contrast that with Wade Treadway's home market in Vermont. Based in Woodstock, he's been in the business for 20 years. Forget listings selling in hours; he has seen houses that have been on the market for years.
"Some people come into the marketplace and go, 'Gee, that place has been on the market for four or five years,' and my reaction is 'Well, you can take three of those years and throw them away because if nobody is here looking, that's not an active marketplace.'"
The roadblock to homeownership
America’s housing market is a study in contrasts. Hot here, in-recovery there. Meanwhile, the percentage of first-time homebuyers hit a 20-year low last year. One reason: It has been hard to qualify for a loan.
"The ratcheting-up of lending standards across the board is so dramatic -- we are so beyond historic norms in our criteria for first-time homeownership. It is putting the squeeze on potential buyers,” Wachter tells MainStreet. "There have been zero net new homeowners, essentially since 2006. It's all a reflection of the unsettled state of housing finance in this country."
Of course, Wachter notes, housing finance right now is basically another branch of government -- particularly for first-time homeowners.
"It's FHA, Fannie and Freddie," she said. "And Fannie and Freddie standards have ratcheted-up so tremendously, so 740 is a typical [credit] score you need for a Fannie or Freddie underwritten loan. That's way beyond historic norms."
Combine tougher lending standards with stagnant income growth and the result: a roadblock to homeownership, especially for Millennials.
"Their unemployment rate is higher than the same age-group would have seen a decade ago,” says Fannie Mae Duncan. “And their real, adjusted household income is actually significantly lower than it would have been a decade ago. Today, demand weakness trumps credit tightness."
In terms of obstacles in the housing market, there has been a lot of discussion about the fact that credit is tighter than it was, and it certainly is.
"But if you look at how big a factor [credit tightness] is compared to the lack of demand because of income growth, it's actually demand weakness that is a bigger factor than credit tightness, in our view today," Duncan says.
A window of opportunity
But assuming they can qualify for financing, buyers may find a window of opportunity now, before homes prices edge even higher.
"I think there is an improved chance to get in if they lower their expectations in terms of price-point," Lawrence Yun, chief economist with the National Association of Realtors, told MainStreet. "So, rather than trying to go for their dream home, go for a starter home that may require some repairs."
And lenders may be finally loosening those standards ever so slightly, opening the door just a crack to first-time buyers. One sign: the recent move by the FHA to lower mortgage insurance premiums, the price a buyer pays for the FHA to insure a loan for lenders.
"That will help some people on the margin," Yun says. "And some of the Fannie and Freddie-backed mortgages, which are predominant in the marketplace, appear to be easing modestly compared to last year. But we are not back to normal in any sense. So it's just about moving the dial a little more towards normal."
Build it and they will come
But America has been under-producing new homes for years. In fact, for the past seven years total units built have averaged 750,000 annually, essentially half of the normal rate of construction.
Yun says that for the nation to be under-producing homes -- not just for one or two years, but for seven consecutive years -- has created a dire lack of inventory.
"Builders need to greatly ramp up production to satisfy demand and they're not doing that," Yun says. He believes there are two factors holding builders back: a labor shortage and a lending crunch. "Builders are saying that it is very difficult to find qualified construction workers. During the housing market bust many construction workers left the industry and never came back. And the second factor -- which may be even more important -- is that local builders require construction loans from local lenders and that has been extremely difficult, post financial-market crisis."
Not only has credit been a hurdle for builders, but Fannie Mae’s Duncan singles out another issue.
"To survive the crisis, a lot of builders had to either release their options on land or sold land to maintain liquidity in order to stay afloat, so (now) they'll have to reacquire land. And then they have to get permitting, and in some areas of California that can take over three years." he says.
In spite of all of these factors, Fannie Mae expects to see a boost in building. "We expect that construction to be up something on the order of about 18% this year, both single-family and multi-family and manufactured housing," Duncan says. "But in some markets, that probably will only keep pace with the current level of demand."
Finding the buyer's markets
That real estate inventory shortage is leading to too many buyers chasing too few properties. In some markets -- Yun mentions Boston, Seattle and San Francisco in particular -- that's leading to bidding wars. "It's an unfortunate side effect of not having the necessary new home construction and everyone is fighting for existing inventory," he adds.
However, buyer's markets do exist in the U.S., but usually in cities with poor employment growth and in areas where there weren't significant price declines. Yun points to the industrial Midwest including the Great Lakes states, particularly Wisconsin, Illinois, Indiana, Michigan and Ohio. Home prices in these states are “very affordable” and inventory is adequate to meet demand. New England -- outside of Boston -- including upstate New York, Vermont, New Hampshire, Maine and Connecticut are also buyer's markets in Yun's view. Opportunities for buyers may also open up in Texas and Louisiana because of low oil prices.
"Whether or not the individual who is interested in an affordable house can find a job in those markets, that's the question," Duncan adds.
"Actually, in many markets it's cheaper to own than to rent,” Wachter notes. “Particularly with today's interest rates. We don't know with mortgage rates going forward, but at today's historically low mortgage rates, it's cheaper to be an owner -- that's the conundrum."
Meanwhile, the real estate market is improving in the Sunbelt states. Yun mentions Atlanta, Charlotte, Raleigh-Durham and Nashville. And Florida is regaining the retiree market. And home building is on the upswing in the Southern states, so inventory is also improving.
-- Hal M. Bundrick is a Certified Financial Planner and contributor to TheStreet. Follow him on Twitter: @HalMBundrick