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Clear Capital Reports U.S. Home Price Gains Shrink to 3.7%
National quarterly price gains continue to slow as the winter season approaches; investor activity helps Riverside, Calif. and Miami, Fla. price improvements; and muted REO influences help limit price declines in Seattle, Wash.
TRUCKEE, Calif. – Nov. 5, 2009 – Clear Capital (clearcapital.wpengine.com), a premium provider of data and solutions for real estate asset valuation, investment and risk assessment, today released its Home Data Index ™ (HDI) Market Report. Patent pending rolling quarter technology significantly reduces the multi-month lag time associated with other indices to help investors, loan servicers and individual buyers and sellers make more informed, timely and profitable decisions. This month’s report features data compiled through Oct. 25, 2009.
Report highlights include:
- National / Four Region Overview: The national quarterly price change extended its softening trend, posting a 3.7 percent gain, while the national year-over-year price decline was trimmed again, producing single digit losses for the second month in a row (-8.4%).
- Metropolitan Statistical Area (MSA) drilldown: Quarterly price gains remained strong among the highest performing major markets, helped by the continued decline in the percentage of total sales that are real estate owned (REO).
- Micro Market Analysis: Steep declines in the first half of this past year produced a -13.8 percent yearly price change for the Seattle MSA.
The Clear Capital HDI Market Report offers the industry, investors and lenders a near real-time look at pricing conditions not only at the national and metropolitan level, but within local markets. Clear Capital data is built on the most recent data available from recorder/assessor offices, and then further enhanced by adding the Company’s proprietary market data for the most comprehensive geographic coverage available.
“Nationally, both the top and bottom performing markets are converging to modest quarterly changes, indicating a return to stable markets,” said Alex Villacorta, Sr. Statistician, Clear Capital. “As we’ve seen since the spring season, many markets have returned to traditional seasonal fluctuations and the strong summer gains are showing signs of slowing.”
“The continued decline in REO saturation rates, as well as an increase in the proportion of cash buyers in both distressed and fair market sales, are an encouraging sign of investor optimism coming into the traditionally slow months,” added Villacorta. “If the home buyer tax credit is extended and possibly expanded, it could add even more momentum through the slow months to build up to a very strong spring in 2010 as more buyers are sensing that home prices truly have hit the bottom of the current cycle.”
National/Four Region Market Overview (Sept. 26, 2008 – Oct. 25, 2009)
The national year-over-year price decline was trimmed another 1.5 percent from last month, producing single digit losses for the second month in a row (-8.4%). The national quarterly price change extended its softening trend, posting 3.7 percent gains—down from the 6.3 percent gains experienced last month. This pattern held true across all four regions which continue to post more consistent price changes, a likely reflection of more uniform lending and foreclosure practices, along with a reduced influence of the REO segment. This month’s national REO saturation rate declined to 28.0 percent—a 5.1 percent improvement since July.
The softening gains reflect a step back from this year’s strong summer price increases spurred by the deeply discounted prices of last winter, homebuyer incentives and a general sense by investors that the bottom of the price decline was occurring. Investor activity does appear to be on the rise. This past year, the proportion of REO purchases made with cash grew 12.4 percent. Homes purchased with cash, compared to a traditional mortgage, are more prevalent among investors than those purchasing a primary residence. The magnitude of this increase indicates investor activity is contributing to the recent gains in home prices and has the potential to carry us through the normally slower winter season.
Metro Markets (Sept. 26, 2008 – Oct. 25, 2009)
Quarterly price gains remain strong among the highest performing major markets, helped by the continued decline in the percentage of total sales that are real estate owned (REO). Only New Orleans, La., Louisville, Ky. and Cleveland, Ohio saw increased REO saturation rates, and even then the increases were slight (less than one-half percent each).
Excluding the additional one percent quarterly improvement in New Haven, Conn., all the markets experienced slowing quarterly price gains, continuing last month’s general shift to more moderate gains. On average, the highest performing major markets saw a decrease of 5.5 percent in their quarterly gains. If this trend continues into the winter, it is possible that some of the current top performers will see single digit quarterly gains or even quarterly declines by the new year. This plausible scenario, while a slowdown, would still represent a significant improvement from the extreme and broad price declines and elevated REO saturation levels experienced last winter.
Of particular note, the price spike we’ve seen in Cleveland has started to diminish, dropping to 26.0 percent for the quarter, while continuing to post a strong yearly price increase (50.4%). Cleveland returned a flat REO saturation rate as compared to last month, as well.
The lowest performing major markets continue to reflect the relatively healthy changes that occurred across the nation in recent months, with only two modest quarter-over-quarter losses present. However, the similarly minor and reduced gains in these markets serve caution that we may experience a pause in price increases as we head into winter. Las Vegas, Nev., Tucson, Ariz. and Riverside, Calif. saw slight improvements in their quarterly gains compared to last month, while the remaining 12 markets saw continued gains but of reduced magnitude.
Raleigh , N.C. experienced the largest increase in REO saturation since last month, but its modest 1.4 percent increase reflects a general stability in these markets. Although five other markets ( Seattle, Richmond, Jacksonville, Charlotte and Tucson) experienced minor increases in REO saturation, the average increase was just 0.7 percent. The remaining nine markets saw declining REO saturation rates, generally seen as a positive sign, with a combined average reduction of 2.1 percent.
The Riverside and Miami MSAs continue to experience improved results, having dropped from near the top to the bottom of the list over the past few months. Both are experiencing a much higher percentage of cash sales, which is indicative of heightened demand by investors for all property types, not just REOs. Historically, these markets have seen cash sales account for less than ten percent of all non-REO sales. Currently, Riverside is seeing 23.6 percent of all non-REO sales completed without financing (i.e. cash sales), and Miami is experiencing an even greater 30.3 percent. These high percentages in non-REO cash sales highlight the magnitude of investment activity which has spread beyond the REO segment.
Micro Markets (Sept. 26, 2008 – Oct. 25, 2009)
This section highlights a single market every month with a deeper dive into how the micro- and macro-markets relate to each other.
Steep declines in the first half of this past year produced a -13.8 percent price change for the Seattle MSA. Compared to most of the major western markets, however, the overall price decline in Seattle was less severe because of muted REO influences. For the most part, Seattle?s REO saturation rate has remained below 20 percent percent, spiking briefly last winter at 24.7 percent, before returning to its current rate of 15.8 percent.
A latecomer to the housing market decline, Seattle didn’t experience a reduction in prices until the fall of 2007—a full year after home prices generally began to fall across the nation. Seven consecutive quarters of decline followed, ending in an abrupt halt this past spring, making the recovery to date resemble a floor. In total, Seattle home prices fell 23.4 percent since they peaked in the fall of 2007.
In contrast to last month’s micro market report on Baltimore, Md., support for home prices emanated from Seattle’s popular city center. The urban and scenic areas to the north of downtown, as compared to the more industrial south end of town, have fared relatively well during the downturn. Immediately north of the financial district and across Lake Union resides the best performing area (ZIP 98103) with a price change of only -14.8 percent since the peak and -5.6 percent for the year. The close proximity to downtown and the University of Washington has helped support home prices in this neighborhood.
Well south of the city’s core, and east of Tacoma, lies the small town of Sumner (ZIP 98390). Lacking the financial base that benefits Seattle and Tacoma, and outside the typical Seattle commute, Sumner represents the more rural region of the micro market. While not substantially worse off than its immediate neighbors, Sumner has experienced the greatest price decline in the MSA for the year (-20.6%). Despite the steeper declines early in the year, however, Sumner has followed the general trend for the MSA, reaching a floor six months ago and has demonstrated a 1.2 percent gain since.
Clear Capital Home Data Index™ Methodology
The Clear Capital Home Data Index (HDI) provides weighted paired sales, and price-per-square-foot index models that use multiple sale types, including single-family homes, multi-family homes and condominiums. These models are combined with an address-level cascade to provide sale-type-specific analysis for thousands of geographic areas across the country. The indices include both fair market and institutional (real estate owned) transactions. They also provide indicators of REO activity such as REO discount rates, REO days on market and REO saturation. The Clear Capital HDI generates 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, or at any arbitrary time period.
About Clear Capital
Clear Capital (clearcapital.wpengine.com) is a premium provider of data and solutions for real estate asset valuation and risk assessment for large financial services companies. Our products include appraisals, broker-price opinions, property condition inspections, value reconciliations, and home data indices. Clear Capital’s combination of progressive technology, high caliber in-house staff and a well-trained network of more than 40,000 field experts sets a new standard for accurate, up-to-date and well documented valuation data and assessments. The Company’s customers include 75 percent of the largest U.S. banks, investment firms and other financial organizations.
Address Level Cascade – Provides the most granular market data available. From the subject property, progressively steps out from the smallest market to larger markets until data density and statistical confidence are sufficient to return a market trend.
Home Data Index (HDI) – Major intelligence offering that provides contextual data augmenting other, human-based valuation tools. Clear Capital’s multi-model approach combines address-level accuracy with the most current proprietary home pricing data available.
Metropolitan Statistical Area (MSA) – Geographic entities defined by the U.S. Office of Management and Budget (OMB) for use by Federal statistical agencies in collecting, tabulating, and publishing Federal statistics.
Paired Sales Model – Weighted linear model based on repeat sales of same property over time.
Price Per Square Foot (PPSF) Model – Median price movement of sale prices divided by square footage over a period of time — most commonly a quarter.
Real Estate Owned (REO) Saturation – Calculates the percentage of REOs sold as compared to all properties sold in the last rolling quarter.
Rolling Quarters – Patent pending rolling quarters compare the most recent four months to the previous three months.
The information contained in this report 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.
Vice President, Marketing