New-home sales in 2012 were up 19 percent over 2011 and are moving at a similar speed this year. Even at this relatively rapid pace, the sales level is about two-thirds of the 1990s activity. The trek back has been a slow slog, but the recent pace is more akin to past recoveries—it’s just coming much later than in the past.

Housing leads the economy into and out of recessions, which was the case in all but the current recovery. New-home sales usually bottom out six months after the recession begins (similar to the average time it takes to build a new home); but in this recovery, it took 38 months for home sales to reach bottom, partially because of boosts from several editions of a home buyer tax credit.

At the other end, new-home sales usually take a year and a half into a recovery to reach a post-recession peak, but the current recovery is nearly four years old and sales remain well below their potential peak. In the first 18 months of past recoveries, new-home sales increased an average of 120 percent. New-home sales currently are running about 65 percent above the February 2011 trough of 273,000. Clearly, this is not your grandfather’s—or your father’s—recovery.

It’s clear that this economic and housing recovery is very different from past experiences and, hence, difficult to forecast. Housing led the collapse by nearly two years and once the world financial disintegration began, the dive deepened and lengthened. Economic repairs have been made and the recovery—weak as it is—is finally underway. But housing still remains a very reluctant participant.

Factors Impacting Housing Recovery A number of elements continue to hold the housing recovery to a modest pace:

• Employment remains below its peak and well below its potential. The U.S. lost 8.7 million jobs from February 2008 to February 2010, but only has gained back 5.9 million, or about two-thirds of the loss. However, that calculation doesn’t account for 7 million individuals who aged into the labor force over a five-year period. There are nearly 3 million unemployed in the prime household formation ages of 25 to 34.

• Mortgage credit conditions remain much tighter than when lending was considered sane. From 2000 to 2002, successful mortgage borrowers had FICO scores that were 32 points above the average scores. The separation in the past three years has risen to 68 points. The increase is because of a rise in mortgage underwriting requirements, which means fewer potential households qualify for a mortgage. As a result, cash purchases and the use of more flexible FHA and VA programs have increased from 20 percent to 35 percent of the new-home market.

• House prices have a double-edged impact. Lower house prices provide affordability to first-time home buyers. Higher prices and larger positive price movements provide more equity to current home owners and confidence to all potential buyers that prices will not decline. Existing home prices have been rising at pre-boom rates and the net effect is improving consumer confidence and returning some buyers to the market. Because first-time home buyers are primarily affected by the tight credit, the net effect of higher house prices has been positive. The rise also has reduced the number of homeowners with negative equity and hence able to move.

But an existing home purchase provides a competitive alternative to a new-home sale and pricing acts as a governor to new-home price increases. At the same time, builders are facing higher material prices, scarce lot availability, and heavier competition for labor. Some national public builders have even slowed production to keep prices above the cost of construction and leave something for investors. Sales will improve as all of these braking conditions resolve themselves, but speed will be slower than in the past.