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Clear Capital recently released its Home Data Index™ (HDI) Market Report with data through February 2015. Using a broad array of public and proprietary data sources, the HDI Market Report publishes the most granular home data and analysis earlier than nearly any other index provider in the industry.

–       While four of the California Bay Area’s nine counties are near or exceeding their pre-meltdown valuation highs, our data suggests local market forces will keep bubble-like behavior at bay for the rest of the state and throughout the nation. Healthy buyer demand and strong job markets in the California Bay Area are factors helping to push home prices up. Our most recent data through February 2015 shows the Marin, San Francisco, San Mateo, and Santa Clara counties approaching or exceeding their peak levels over the last 18 months.

o   San Francisco and San Mateo counties have exceeded peak levels on an all property tier level (low, mid, and top tiers). San Francisco is now 16 percent above former peak levels, while San Mateo County is 8 percent above.

o   On the cusp are Marin and Santa Clara counties, just 2 percent and 3 percent respectively, below their prior peak levels at the all tier level.

–       The West, still 22 percent below peak pre-recessionary levels, and the State of California, 27 percent below peak as a whole, douse concern of a bubble nationwide. Yet, in spite of its peak-level performance, the Bay Area housing market is showing signs of cooling price gains, as opportunity for affordable housing is scarce. Data through February 2015 shows early signs of cooling in San Francisco and San Mateo counties. San Francisco and San Mateo counties’ quarterly growth rates peaked in the second quarter of 2013 at 6.6 percent and 5.9 percent respectively, but have decelerated in each quarter since.

o   San Francisco county’s price gains fell into negative territory by 0.3 percent at the all tier level in February. We observed the largest decline, of 0.5 percent , in the top tier segment. This time around, it’s the top tier that’s cooling first—the inverse of what occurred in the last bubble.

o   The same is true in San Mateo county with the all tier slowing to current quarterly growth of 1.2 percent, half of the previous period, and top tier segment price gains going negative by 0.4 percent.

o   The all tier also cooled in Santa Clara county, with growth down to 0.4 percent from 1.4 percent in the previous quarter. Santa Clara county’s top tier has been exceeding its peak-level performance for the previous six rolling quarters, going back to October 2013, though our latest data shows this tier slowed to a 0.2 percent growth rate.

o   Our February data also shows a low percentage of distressed properties in the Marin, San Francisco, San Mateo, and Santa Clara counties. The California Association of REALTORS® reports an unsold property supply of 1-2 months for these areas, indicating a sellers’ market. These counties together exhibit a median home price exceeding $650,000. The median home price in San Francisco and San Mateo counties alone currently exceeds $800,000. Falling prices in these two counties suggest constrained availability of existing properties has eroded affordability in these areas, leading some to delay their buying decisions while they wait for the market to open.

–       Despite historically low interest rates, the West continues to experience moderation in home prices, with gains falling to 7.6 percent year-over-year in February. The Western region’s all tier gains fell to just 1 percent in February down from 1.7 percent the previous rolling quarter. Over the previous two quarters, the West has succumbed to single digit gains. In fact, year-over-year gains have decreased at a rate of two percentage points for the past four consecutive rolling quarters. Despite this, the West continues to lead in quarter-over-quarter price gains, as well as yearly gains over the other three regions. Nationally, quarterly home price gains currently sit at 0.6 percent for February, and yearly gains are at 5.8 percent.

“The fact that we are now seeing quarterly declines in arguably one of the hottest markets in the country should be a stark reminder that the state of the overall housing market continues to be tenuous,” says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. “Buyers may have finally reached their limits in response to red-hot price increases, and as such are pulling out of the demand pool. If waning buyer demand continues through the first part of the year, we could see inventory increase, and in response falling home prices well into the second quarter.”

“Extending beyond the Bay Area, all of the bottom performing 15 markets are either already showing negative quarterly returns or are within .5 percent of doing so,” says Villacorta. “While not all markets are in bubble territory or on the precipice of declines, the market overall is at an inflection point. The aggressive run of price growth that started in 2013 has clearly subsided, and like all inflection points, market participants must be vigilant of local market conditions to ensure their interests aren’t on the downside of any price swings back into negative territory. Given the lackluster start to key housing metrics this year, we continue to stand by our start of year predictions of 1-3 percent growth for the full year.”

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