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Are July Prices Signaling the New Normal?

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By Steve Cook

“While July home prices continue to ramp up throughout the country led by Las Vegas posting more than 30.0 percent yearly growth, let’s not forget a healthy recovery means moderation as the new normal takes hold” said Dr. Alex Villacorta, vice president of research and analytics at Clear Capital. “Over the last half of 2013, we continue to call for a moderation in home price trends. A rising price floor will dampen some potential homebuyers’ appetites, particularly as recent gains bring many markets back into pre-bubble equilibrium. In other words, homebuyers are starting to adjust to the new normal, where steep discounts from the peak are not as attractive as they once were. Having said that, if housing inventory continues rising, it should help alleviate some of the recent pressure on prices, as well as homebuyer’ confidence in the market’s health overall.

“After these shifting fundamental drivers shake out, we expect the recovery to continue at a healthier and more sustainable pace. Certainly Las Vegas is the strongest example of a market that is really hot, with yearly growth of 31.2 percent. While these gains are a nice pick-up off the price floor, they will not last over the long term.

“We expect most of the major markets across the country to follow the path of sharp upward corrections in the short term, followed by moderating gains as markets fall back in line with their long run levels. Phoenix, for example, is now seeing quarterly growth that supports a yearly growth rate more in line with 10.0 percent, as opposed to the current yearly gains of 23.3 percent. The exact timing of this moderation will vary market by market.

“In Detroit, for example, given the current uncertainty in the municipal finances, it will likely be some time before REO saturation subsides to a level more in line with national rates and prices bounce back in a meaningful way. While Detroit has struggled with high levels of distressed activity since the housing market collapse, the recent financial developments for the metro will likely serve as another hurdle. Big picture, though, the housing market overall is in a great position and likely to continue to improve. All the more reason we must continue to observe performance market by market. What holds true for Las Vegas doesn’t hold true for Detroit, let alone San Jose,” said Villacorta.

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