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Is the housing recovery stalling?

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The housing recovery is occurring, it is well past its bottom, but it has slowed dramatically in the past 3 months.

Part of this slowdown can be attributed to the brutal winter east of the Rockies, but there are other factors in play.

In the resale market, inventory is low, which has lead to rising prices. This has been driven in large part by investors disproportionately skewing the numbers in many markets, which has lead to rising prices. Most of the investors are all cash buyers perfectly content to rent these homes out and sit on their appreciating asset. We also have seen an unprecedented surge in institutional investors. The rental market continues to be strong due to the foreclosure crisis and the lack of economic mobility. After all people have to live somewhere.

Many home-owners are sitting on the sidelines, because they are still underwater on their current home. Others, who are not upside down, are not eager to sell because due to the low supply, they don’t feel they will be able to find another suitable home.

Yet, there outliers in the real-estate market where sales are brisk. San Francisco and New York are the two big ones, buttressing the adage that all “Real-Estate is Local.”

While there is some truth to that expression, the biggest factor are interest rates, which are a national gauge. But in those two places, those buyers typically are all cash buyers or are putting large down payments, cushioning any angst over higher borrowing costs.

Interest rates have been rising yet are still very low by historical standards. However this slight but steady increase in mortgage rates is enough to push potential buyers out the market. This is because lending standards have become far stricter since the financial crisis of 2008.

A home is considered affordable, by Trulia's definition, if total monthly costs after a 20% down payment — including mortgage, insurance and property taxes — are less than 31% of a region's median household income.

Rising home prices and interest rates, combined with modest wage increases, have chipped away at affordability over the past year, says Trulia Chief Economist Jed Kolko. Monthly payments for an average home cost 20% more than a year ago, he says.

"Affordability is worsening," Kolko says. "Prices are still rising faster than wages and income."

A big reason housing is expensive in many areas is a dearth of new home construction. Land for development is limited and building regulations are onerous in parts of coastal California, South Florida and the Northeast, while property is more widely available in the Midwest and South, Kolko says.

Still the housing recovery is happening however meek, and that is a good thing for the overall economy.