Clear Capital: Home Price Appreciation Is Slowing; Deals Still Exist

Posted by Patrick Barnard on June 03, 2014 No Comments
Categories : Residential Mortgage

U.S. home prices inched up about 0.9% during the three months ending May 31, according to Clear Capital's Home Data Index (HDI) Market Report.

On a year-over-year basis, home prices were up about 9.2% in May compared to May 2013, the report finds.

While the overall rate of appreciation has been slowing for the past five months, performance at the ZIP code level remains widely variable, according to Clear Capital. For example, the top performing ZIP code in the Cleveland area saw a 42.3% increase in home prices, year over year, while the lowest performing ZIP code saw home prices drop by 23.3%.

As a result, investors looking to get in on the REO-to-rental game need to be extremely savvy in terms of where they shop.

‘Good deals do exist, but you need to work harder to find them,’ says Dr. Alex Villacorta, vice president of research and analytics at Clear Capital, in a statement. ‘Savvy investors with deeper market insight into current market dynamics will be rewarded. Despite a lethargic spring buying season, the range of home price growth across the 50 major metro markets may surprise you – 22.3 percentage points over the last year. A deeper dive into metro markets' ZIP code price change over the last year reveals a range from -37 percent to +45 percent.’

Clear Capital forecasts that U.S. home prices will increase by slightly less than 5% before the end of this year.

Villacorta points out, however, that investor demand is waning, as ‘the rising price floor in the low-tier sector of the market has squeezed investor returns.’ Meanwhile, many traditional home shoppers have been priced out of the market, due to rising prices and stricter underwriting guidelines for mortgages.

‘It's no surprise that the spring buying season isn't moving the needle this year,’ Villacorta says, adding that the firm does not expect to see a large increase in prices through the summer buying season. ‘It's likely we'll keep chugging along at our current pace, somewhere around 1 percent quarterly gains for the rest of the year.

‘Considering the number of key housing fundamentals that remain stressed, like millions of borrowers still underwater, high levels of student debt, potential borrowers with less-than-perfect credit and a job market that is still recovering, we don't expect a market with waning investor demand to withstand any eye-popping rates of growth,’ he adds. ‘Although it's not a quick fix to the larger housing problem, home price moderation is really a healthy move for the market overall. While some might be discouraged by a weak spring buying season, we are encouraged that price trends are finally calibrating back to pre-bubble norms. Despite other headwinds, moderating home prices will serve as the foundation to a more balanced market moving forward.’

Villacorta, however, says that even though home prices are rising to the point where investors are getting deterred, ‘We're still in recovery mode, which means deals exist. Market participants just need to look deeper.

‘As softer gains continue to unfold, broad stroke investment approaches will prove less and less fruitful,’ he says. ‘As such, market participants who pinpoint investments will be better positioned for success.’

For more, including a breakdown of the top performing and bottom performing metro areas, click here.

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