Another issue though is that the entire real estate market recovery has been a bit abnormal from the beginning. The bulk of purchases are not being done by the middle class but by the 1% who have been investing in homes in order to rent them out. Take a look at this chart from Goldman which used data from multiple sources to triangulate the percent of purchases that are all-cash:
So over half of sales right now are all-cash, which is about 30-40% higher than it was pre-crash. I don't really know any middle class folks who can afford to buy a decent house all cash (especially with median household income down to 1996 levels), so the bulk of the volume which is causing the market to appear to recover is coming from the 1% either buying personally or through investment companies. Imagine what happens to the market when they no longer view this trade as profitable and the real estate market has to once again depend on ordinary Americans for growth?
Even the growth attributable to conventional mortgages is a bit suspect. Mortgage rates for 30 year fixed conventional mortgages have been below 4% for much of the last two years thanks to the unnaturally low rates pegged by the Federal Reserve. Imagine what would happen to the bulk of these sales if mortgage rates normalized to where they were pre-Great Recession? Rates were at 6.8% in July of 2006 and at 8.5% in May of 2000. How many middle class Americans could afford to buy a home at today's prices with those rates? At some point, we will be going back to them. And potentially soon if the foreign investors that have been funding our debt continue to turn away as they have been since June.