The July 2021 Home Data Index™ (HDI™) Market Report shows national quarter-over-quarter (QoQ) home price growth is at 6.2 percent.
Download the report, or read it below.
* Note that due to unprecedented conditions in spring 2020 (due to COVID restrictions) and tight inventory in spring 2021, the year-over-year numbers based upon paired sales in certain rapidly-rising markets (like Phoenix) may be overstated. In that case, we encourage the consideration of the additional year-over-year comparison based upon price-per-square-foot, which may be more in line with market dynamics in this situation.
Commentary by Brent Nyitray of The Daily Tearsheet
Home price appreciation continued in July, as tight supply was met with strong demand. The homebuilding sector continues to under-build, and the latest new home sales report out of the Census Bureau demonstrates just how stark the issue is. New home sales in July fell by 6.6% compared to June and are down 19.4% from a year ago. Shortages of labor and materials are supposedly to blame.
The lack of supply means that the Clear Capital Home Data Index (HDI) Report had another strong month, rising 6.2% on a quarter-over-quarter (QoQ) basis and 17.3% nationally. The West continues to be the hottest market, with prices rising 6.9% QoQ and 22.1% nationally. Interestingly it seems like some homeowners are ringing the register and leaving for places like Phoenix, Arizona — prices up 12.5% QoQ / 48.3%* year-over-year (YoY) — and Las Vegas, Nevada — prices up 9.2% QoQ and 18.9% YoY.
The Northeast saw prices rise 4.8% QoQ and 17.2% YoY, while the South was up 6.4% / 15.5% and the Midwest rose 6.5% / 15.8%. In fact, there was only one MSA (Bakersfield, California) that was negative on a QoQ basis, and only two that were below 1% (Honolulu, Hawaii and San Antonio, Texas).
It’s important to reiterate that many of these increases are affected by market conditions a year ago, when much of the country was in lockdown. This depressed the sample size, which means that the margin for errors are wider than normal. We have included some information on appreciation based on price-per-square-foot, which is meant to be a reality-check on the numbers. For example, Phoenix, Arizona rose 48% based on the paired sales model, but rose 28% if you look at price-per-square-foot, which is probably more realistic.
The bottom line is that we have a profound shortage of housing in general, and the only cure will be more building. The new home sales report was a big disappointment – the Street was looking for 800k, so the 667k reported by Census was a sizable miss.
The Federal Housing Finance Agency (FHFA) just unwound the first of former Director Mark Calabria’s policies regarding the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. It eliminated the Adverse Market Fee which was a half percent surcharge on mortgage refinance loans. The reason for the oddly-named Adverse Market Fee was to cover the government’s losses if there was a wave of foreclosures and delinquencies as a result of the pandemic. So far, that wave of foreclosures hasn’t materialized since there is a foreclosure moratorium going on. But the message from the FHFA is that it thinks Fan and Fred have enough of a financial cushion to handle whatever is coming next.
That’s probably a fair bet for a couple of reasons. First a financial meltdown simply is not in the cards. The vast majority of the U.S. mortgage market is guaranteed by the taxpayer, so credit losses for the private sector are going to be almost nil. And without some sort of financial shock, the forced selling which accompanied the 2008 crash just isn’t going to be there.
But let’s take a closer look at the numbers.
According to the Morgage Banker’s Association’s latest numbers, there are 1.74 million homeowners in forbearance plans right now. We will undoubtedly see some of those end up in foreclosure when the moratorium expires at the end of this month. But the big question is what percentage? That will depend on the decisions of mortgage servicers. And in their eyes, modifying a loan on a home with equity in it is a much better option than foreclosure. So, most troubled borrowers are going to end up with a mod. And, even if a quarter still go to foreclosure, we’re talking just 435,000 homes, which is pretty small compared to the National Association of Realtors’s (NAR) estimate for 2021 existing home sales of about 6 million properties.
That supply isn’t going to be released all at once either since the foreclosure process takes anywhere from six months to three years, depending on the state. Whatever incremental supply there is will probably be snapped up by real estate funds flush with fresh capital raised in anticipation of this event. And big picture, the supply / demand gap is about 5.5 million homes, according to a NAR paper. Which means any “foreclosure wave” will still be nothing more than a down-payment on what is needed.
So, whatever happens will result in no financial crisis, no deluge of homes, and no housing crash. The net effect will probably be nothing more than a speed bump in the road to higher prices. Which is why the FHFA removed the charge.
About the Clear Capital Home Data Index™ (HDI™) Market Report and Forecast
The Clear Capital HDI Market Report and Forecast provides insights into market trends and other leading indices for the real estate market at the national and local levels. A critical difference in the value of Clear Capital’s HDI Market Report and Forecast is the capability to provide more timely and granular reporting than nearly any other home price index provider.
Clear Capital’s HDI Methodology
• Generates the timeliest indices in patent pending, rolling quarter intervals that compare the most recent four months to the previous three months. The rolling quarters have no fixed start date and can be used to generate indices as data flows in, significantly reducing multi-month lag time that may be experienced with other indices.
• Includes both fair market and institutional (real estate owned) transactions, giving equal weight to all market transactions and identifying price tiers at a market specific level. By giving equal weight to all transactions, the HDI is truly representative of each unique market.
• Results from an address-level cascade create an index with the most granular, statistically significant market area available.
• Provides weighted repeat sales and price-per-square-foot index models that use multiple sale types, including single-family homes, multi-family homes and condominiums.
The information contained in this report and forecast is based on sources that are deemed to be reliable; however, no representation or warranty is made as to the accuracy, completeness, or fitness for any particular purpose of any information contained herein. This report is not intended as investment advice, and should not be viewed as any guarantee of value, condition, or other attribute.