Clear Capital recently released its Home Data Index™ (HDI) Market Report with data through September 2012 which showed far more markets improving than declining. The HDI Market Report uses a broad array of public and proprietary data sources providing the most timely and relevant analysis available.
Report highlights include:
• Fiscal cliff uncertainty threatens to kill housing’s momentum; consumer sentiment is key to housing market progress.
• Las Vegas is the next Phoenix with yearly home price growth of 8.0% and 9.5% forecasted over the next six months.
• National yearly home price growth of 3.6 percent picked up in September, with additional gains of 2.2 percent forecasted through winter.
“While housing continued to make progress in September, we’ve turned our focus to the impending fiscal cliff,” says Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. “With forecasted gains of 2.2 percent over the next six months, the threat of the fiscal cliff could throw a wrench into the recovery.
“If the cliff is avoided, we still run the risk of damaging confidence with a resolution pushed against year-end deadlines. Confidence is key to turning the recovery’s near term sprint into a marathon. The sooner businesses and consumers are reassured, the more likely they are to build, purchase, or loan on a house.”
Housing and Sentiment: Threatened by Fiscal Policy, Boosted by Monetary Policy
The good news: far more markets are improving than declining. Our forecast shows the recovery will sustain the typically slow winter, and start the spring buying season strong.
As we approach the year’s end, can fear from an impending fiscal cliff sway consumer confidence and discourage potential home buyers? We say yes, it can. Congress must make tough decisions before the 11th hour.
Economic uncertainty will keep buyers on the sidelines. Threatening to temper confidence is the fear Congress will not act in time to avert the looming fiscal cliff. The debt ceiling debate last year highlighted how dangerously close lawmakers are willing to come to deadlines before reaching an agreement. Consumers reacted negatively to the high level of uncertainty with a 14.3 percent drop in sentiment, the largest since the end of the recession. At the same time, home prices were experiencing the worst annual declines since the bottom of the market in 2009. In May 2011 the debt ceiling debate started to heat up, while home prices dropped 6.8 percent year-over-year. Annual home price declines persisted through 2011, hung over from the expiration of the first-time-home-buyer tax credit and the drop in consumer confidence. Prices finally saw relief in early 2012, following improvement in consumer sentiment.
Strength in consumer sentiment also corresponded with the only two housing improvements since the bottom in 2009. Between March 2009 and June 2010, consumer sentiment rebounded 32.6 percent. Over the same period, home prices went from seeing yearly declines of 22.7 percent to yearly growth of 4.0 percent. Similarly, between December 2011 and September 2012, consumer sentiment gained 12.0 percent, and home prices moved from yearly losses of 2.3 percent to gains of 3.6 percent.
Now, economic and housing improvements are priming pent up home buyer demand for a breakout. Consumer sentiment has finally rebounded from debt ceiling debate lows of last year, up 31.8 percent. Homebuilders are echoing consumers, with confidence at a five year high. While the Fed’s recent announcement of QE3 should further boost expectations for housing, it might not be enough to overcome fear of the cliff.
Results and Forecast: Heading into Uncertainty on Solid Ground
The recovery continued to unfold in September at the national and regional levels with gains across the board. 1.8 percent quarterly growth at the national level was driven in part by gains in the West. The West posted notable quarterly gains of 3.7 percent, the fifth consecutive month it’s led regional gains. The Midwest and South regions had quarterly home price gains of 1.9 percent and 1.3 percent, respectively. The Northeast posted the weakest quarterly gains of 0.2 percent.
Yearly growth is forecasted to shake off winter’s chill and continue through the first quarter of 2013. National prices closed out the third quarter 3.6 percent higher than the previous year. If the looming fiscal cliff is averted, the national home price forecast through Q1 2013 projects a 2.2 percent gain.
At the regional level, the West continued to dominate with 9.4 percent in yearly gains. This is the highest yearly gain the region has recorded since the second quarter in 2006. The first in, first out recovery has been driven by harder hit markets, many of which reside in the West. Forecasted gains of 5.3 percent over the next six months in the West are projected to drive a sustained recovery at the national level through winter.
The South and Midwest also saw yearly gains of 3.2 percent and 1.5 percent, respectively. The South should see further price advances of 1.9 percent through March 2013 and the Midwest 0.8 percent. The Northeast continued to see yearly gains soften, with prices rising just 0.9 percent over the previous year. Home prices in the Northeast are expected to do more of the same and remain relatively flat, growing 0.9 percent over the next six months.
MSA Market Analysis and Forecast: Las Vegas, Not Just a Gamble Anymore
The top 50 metro markets generally improved over the last quarter, with average price gains of 2.4 percent. More significant progress was made over the last year, with average growth of 4.7 percent for the group.
Phoenix held its ground in September as the strongest metro with 27.7 percent yearly growth. The metro has become a benchmark for recovering markets, with low price points on distressed sales attracting buyers. Over the next two quarters, Phoenix prices are projected to expand another 10.7 percent. As this low price point market continues to rise, it will eventually price out some of the current demand pool. But at this point, it continues to offer attractive potential to buyers. Should the forecast be realized, Phoenix’s future median price of $174,000 would remain 33.3 percent below the peak of $262,000.
Meanwhile, Las Vegas is shaping up to be the next Phoenix. Yearly home price gains of 8.0 percent should see additional growth of 9.5 percent over the next six months. The market found its footing despite relatively high rates of REO saturation at 35.7 percent. Like Phoenix, Las Vegas is seeing gains now concentrated in the discounted price segments, and REO saturation shifted from a headwind to a tailwind.
If Las Vegas looks like the next Phoenix, Memphis looks more like the next Atlanta. Home prices in Memphis are down 48.3 percent from the peak, with further declines expected. Over the next six months, Memphis home prices are forecasted to fall another 2.1 percent. REO saturation rose by 8.6 percentage points over the year, to 42.2 percent. The market has yet to acclimate to the highly distressed environment. By comparison, Detroit is the only other market in the top 50 metros that has an REO saturation rate over 40.0 percent. With yearly declines of 9.8 percent, Memphis is a hard hit market that has yet to find the bottom.
The six month forecast for the top 50 metros shows all but seven should see growth over the next six months. Not surprising, two thirds of the top 15 metros are in the West. Regardless, the fiscal cliff has no geographic boundary. Even the healthiest of markets will suffer under the weight of uncertainty.
For more information, visit www.clearcapital.com.