Home Prices Up

11.3% In 2013

Home prices increased about 11.3% in 2013, according to Clear Capital’s Home Data Index (HDI) Market Report.

Prices increased for 10 consecutive months before dropping 0.9% in November, Clear Capital says. Although prices are expected to continue to rise through 2014, the rate of appreciation is flattening, the analyst firm reports.

However, when looking at individual metro markets, the rate of appreciation has been spotty. For example, Phoenix, which was particularly hard-hit by the economic downturn, sprinted ahead with double-digit gains during 2013, whereas other markets, such as Denver, have recovered more gradually.

“It’s the classic story of the tortoise (Denver) and the hare (Phoenix),” the firm states in its report. “While the race continues, expect to see new markets take the lead, as those that have come to define the recovery taper off to their long-run historical rates of growth.”

In other words, just because a metro area has seen rapid price appreciation doesn’t mean the trend will necessarily continue into 2014.

Rather, Clear Capital’s research shows that the recovery in some metro areas will come by way of “a series of sprints,” while other areas will see a more “slow and steady” recovery.

In its report, Clear Capital refers to Phoenix as a “hare” market - because its housing values “jumped” during 2013 but are now starting to stabilize. Denver, conversely, is considered a “tortoise” market because it has recovered more gradually. Without delving too far into the analysis, Clear Capital makes the point that markets that had “more ground to cover” in order to make a full recovery are those that have, in general, seen more rapid price appreciation.

So who will win the “race to recovery” in 2014? The “tortoises” or the “hares?”

“Looking ahead to 2014, we see many markets moving toward the slow and steady path,” the report states. “As markets adjust to their recent price gains, we expect moderation to unfold. At the national level, we forecast the 11.3 percent growth in 2013 to give way to 3.4 percent growth in 2014 - a sign of calibration toward long-run historical average rates of growth.

“In 2014, the hares should see growth of just 2.4 percent, as compared to 14.6 percent in 2013,” the report continues. “As the hares slow down, the tortoises are expected to catch up, tracking nearly even at 2.6 percent growth. Phoenix should see notable moderation, with 2014 gains expected to reach just 1 percent, while we predict Denver will outperform national markets with 4.9 percent growth in 2014.”

“As we enter the next heat of a more mature recovery, there are signs the home buyer mix may shift more toward non-investor home buyers,” says Alex Villacorta, vice president of research and analytics at Clear Capital. “Ultimately, this non-investor segment will need to get more active to truly stimulate the housing recovery in a way that will have a larger ripple effect on the broader economy. Additionally, moderation at the national level is a healthy move for the broader housing recovery as gains move back into a more sustainable, historical range. As observed over the last several years, skyrocketing gains followed by decimating declines don’t benefit long-term market participants who like slow and steady gains.”

The firm predicts that only nine out of 50 major metro markets will see price declines in 2014 - but those declines will likely be minor and “could be avoided if the market holds up stronger than expected over the winter.”

“At first blush, there are some surprises, like Seattle - with expected declines of 3.1 percent,” the report states. “The market’s median price of $300,000 could act as a barrier to entry for many investors and traditional home buyers.”


Looking ahead

Clear Capital forecasts that the country’s 34 largest metros will see home price gains of between 0% and 5% in 2014.

“With just seven markets slated for price growth exceeding 5% in 2014, it may seem opportunity is scarce,” Villacorta says. “There will be, however, subsets of these metro markets where gains are still plentiful.”

Meanwhile, Zillow reported in December 2013 that national home values continued to rise in November, increasing 0.6% from October to reach an average price of $168,900.

Home values were up 7.1% year-over-year, reflecting a continued slowdown from the summer selling season, when annual home value appreciation peaked at 7.3%, according to the report.

A majority (77.1%) of the metros covered in the reports experienced home value appreciation between October and November, with only 95 of the 485 metro areas (or 19.6%) experiencing declines. On an annual basis, 88% of metros experienced home value appreciation.

Among the 35 largest metro areas covered by Zillow, 34 experienced year-over-year home value increases in November, with nearly half up by double-digit percentages.

Major markets where home values increased the most over the past year include Las Vegas (30.9%); Riverside, Calif. (29.2%); and Sacramento, Calif. (25%). St. Louis was the only metro area in the top 35 where home values declined year-over-year.

For the 12-month period from November 2013 to November 2014, national home values are expected to rise another 4.6% to approximately $176,731, according to the Zillow Home Value Forecast. Large metro areas expected to show the most appreciation over the next year include Riverside (18.6%), Sacramento (11.9%) and Las Vegas (10.4%).

“The pace of home value appreciation has leveled off and is beginning to slow down, after peaking this summer,” says Stan Humphries, chief economist for Zillow. “Much of this year’s rapid growth in home values can be attributed to very strong demand, as low mortgage interest rates, relatively low home prices and a slowly improving economy helped draw buyers into the market.

“Those dynamics are now giving way to more moderating influences, including rising mortgage interest rates, flagging investor demand and slowly increasing for-sale inventory,” he adds. “This slowdown in home value appreciation will contribute to a more balanced market and will help to ease some emerging affordability problems in a handful of very hot markets, particularly in California.”

National rents rose in November from October, up 0.3% to a Zillow Rent Index of $1,297. Year-over-year, national rents were up 2% in November, according to the report.

The data also shows that the number of completed foreclosures in November fell to 5.09 homes foreclosed out of every 10,000 homes nationwide, down from 5.45 homes in September. Foreclosure re-sales represented 8.9% of homes sold in the U.S. in November, up 0.4 percentage points from September but down 1.4 percentage points from November 2012.


Strong Demand

For New Housing?

A lack of inventory of new homes is driving increased demand from home buyers who are determined to reside in new construction.

This pent-up demand, in turn, has helped boost builder confidence in the market.

As a result, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) increased four points in December to reach 58.

All three index components - current sales conditions, sales expectations and traffic of prospective buyers - were up for the month, the NAHB says in a release.

“This is definitely an encouraging sign as we move into 2014,” says Rick Judson, a home builder from Charlotte, N.C., and chairman of the NAHB. “The HMI is up 11 points since December 2012 and has been above 50 for the past seven months. This indicates that an increasing number of builders have a positive view on where the industry is going.”

“The recent spike in mortgage interest rates has not deterred consumers, as rates are still near historically low levels,” adds David Crowe, chief economist for the NAHB. “Following a two-month pause in the index, this uptick is due in part to the release of the pent-up demand caused by the uncertainty generated by the October government shutdown. We continue to look for a gradual improvement in the housing recovery in the year ahead.”

The Mortgage Bankers Association’s (MBA) monthly Builder Application Survey, however, shows that applications for new-home purchases decreased 18% in November, compared to October. The MBA notes that the change does not include any adjustment for typical seasonal patterns.

According to the survey, conventional loans composed 66.2% of loan applications in November, Federal Housing Administration loans composed 19.9%, Rural Housing Service/U.S. Department of Agriculture loans composed 1.1%, and Veterans Affairs loans composed 12.9%.

The average loan size of new homes increased to $295,523 in November, up slightly from $294,480 in October, according to the MBA.

Based on the survey results, as well as assumptions regarding market coverage and other factors, the MBA estimates that about 455,000 new homes had sold so far in 2013, as of the end of November. About 32,000 new homes were sold that month, on an unadjusted basis, the MBA says.


Home Sales Finish

On A ‘Soft Note’

Pending home sales stabilized with a slight gain in November - and monthly increases in the South and West offset declines in the Northeast and Midwest - according to the National Association of Realtors (NAR).

NAR reports that the Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, inched up 0.2% to 101.7 in November from a downwardly revised 101.5 in October, but is 1.6% below that of November 2012, when it was 103.3. The data reflects contracts but not closings.

Lawrence Yun, chief economist for NAR, says the market is flattening: “We may have reached a cyclical low because the positive fundamentals of job creation and household formation are likely to foster a fairly stable level of contract activity in 2014.”

He added that although the final months of 2013 were finishing on a soft note, “the year as a whole will end with the best sales total in seven years.”

Yun also says the market still favors buyers in most of the country, but higher mortgage interest rates, in combination with strong price gains, mean a more modest growth in values is expected this year.

NAR reports that the PHSI in the Northeast declined 2.7% to 82.6 in November but is 1.9% above that of the year prior. In the Midwest, the index fell 3.1% to 100.6 in November but is 0.4% higher than in November 2012.

The data shows that pending home sales in the South rose 2.3% to an index of 116.1 in November and are 0.1% above levels from the year before. The index in the West increased 1.8% in November to 95.0 but is 8.7% below that of November 2012, in part from inventory constraints.

According to NAR, total existing-home sales in 2013 are expected to reach 5.1 million - a gain of almost 10% over 2012 - but should stay at that level this year and then rise to 5.3 million in 2015.

NAR says the national median existing-home price for all of 2013 will be close to $197,300 - up nearly 12% from 2012 - but is projected to rise at a more moderate pace of 5% to 5.5% this year, and grow another 4% in 2015.

Meanwhile, sales of new homes are jumping, due in part to low inventory. According to estimates released jointly by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, sales of new single-family houses in November were at a seasonally adjusted annual rate of 464,000 - 2.1% below the revised October rate of 474,000 but 16.6% above the November 2012 estimate of 398,000.

The median sales price of new houses sold in November 2013 was $270,900; the average sales price was $340,300.

The estimates also show that the seasonally adjusted estimate of new houses for sale at the end of November was 167,000 - representing a supply of 4.3 months at the current sales rate.

Looking at existing-home sales, NAR reports that they dropped 4.3% in November, on a seasonally adjusted basis, compared to October.

On an annualized basis, a total of about 4.9 million homes - including single-family homes, townhouses, condominiums and co-ops - had been sold in 2013 as of the end of November. This was about 1.2% below the 4.96 million that had been sold on an annualized basis as of Nov. 30, 2012, NAR reports.

NAR notes that November marked the first time in 29 months that sales were below year-ago levels.

“Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” says Lawrence Yun, chief economist for NAR, in a statement. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new-home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”

The national median existing-home price for all housing types in November was $196,300, up 9.4% from November 2012.

Distressed homes - foreclosures and short sales - accounted for 14% of November sales, unchanged from October. They were 22% of all sales in November 2012. A smaller share of distressed sales is contributing to price growth, NAR finds.

Foreclosures represented about 9% of November sales, while short sales accounted for about 5%.

Foreclosures sold for an average discount of 17% below market value in November, while short sales were discounted 13%, according to the report.

Inventory continued to tighten in November, declining 0.9% compared to October. About 2.09 million existing homes were available for sale in November - about a 5.1-month supply at the current sales pace and about 5% above the supply available the year before. In October, there was about a 4.9-month supply.

First-time buyers accounted for 28% of purchases in November, unchanged from October. First-time buyers represented 30% of all sales in November 2012.

Some industry experts predicted that homes sales would decline even more dramatically after the Consumer Financial Protection Bureau’s new mortgage rules went into effect in January.

The new ability-to-repay rules, in particular, will make it harder for some consumers to qualify for a mortgage.

Market Insight

Home Prices Up 11.3% In 2013











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