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Clear Capital Reports U.S. Home Prices Rise 5% and All Regions See Quarterly Gains
First index to report U.S. home price gains last month shows continued improvement for July; High REO saturation levels keep markets volatile; Cleveland once again posts strong results; and parts of Phoenix show signs of growth.
TRUCKEE, Calif. – Aug. 6, 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, which last month took the lead in reporting the first U.S. home price gains in more than three years. 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 July 25, 2009.
Key highlights include:
- National / Four Region Overview: National quarter-over-quarter gains improve to 5 percent, with the Midwest (11.2%), South (5.3%), Northeast (2.4%), and West (1.1%) regions all posting gains.
- Metropolitan Statistical Area (MSA) drilldown: Continued high real estate owned (REO) saturation levels add to market volatility; Cleveland once again posts strong results.
- Micro Market Analysis: The Phoenix MSA’s longtime downward spiral showed signs of improvement. The price change for local market Sun Lakes (ZIP 85248) was -15.2 percent for the year (compared to -41.3% for the Phoenix MSA); and even produced a 1.2 percent gain for the quarter.
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.
“While we see yet more improvements in the quarterly price trends, REO activity remains very high.” said Kevin Marshall, President of Clear Capital. “The summer season, combined with increased opportunity for investors and home buyers, helped the most severely impacted markets ease the home price slides experienced this past winter.”
“Since we first broke the news of an upward tick in home prices last month, other indexes have since reported similar findings, spawning debate on whether this is the bottom, or just a seasonal bump. Adjusting for seasonality creates another layer of estimation that can be erratic year-over-year,” said Marshall. “People do buy and sell more homes in the summer, and as a result prices do increase during this season. National level loan servicers, local buyers and investors need to know what is going on in specific markets right now as they manage the remarketing of millions of defaulted properties.”
Marshall added, “As with any housing recovery, small pockets of neighborhoods and specific price tiers are leading the way and posting gains. As individual markets turn, it’s very easy to under price REO listings when you don’t have the most recent, geographically relevant data. Everyone working to get us out of this downturn needs to be very aware of this.”
“So, if buyers, investors and the banks managing REOs know a neighborhood in Cleveland, for example, is appreciating in price this month, they can make more informed decisions and the markets will be healthier in the long run,” said Marshall. “National price trends are interesting and this is most likely not a pricing bottom; however, local, timely price trends are perhaps more critical for everyone in the industry to discuss.”
National/Four Region Market Overview (June 26, 2008 – July 25, 2009)
The National quarterly price gain grew to 5.0 percent this month (up from July’s 1.7 percent increase), reflecting a wide-reaching improvement in price declines across all four U.S. regions.
The Midwest continues to experience a strong summer compared to last winter, softening its yearly loss to -15.7 percent. The West capitalized on improving demand to turn its still heavily REO-saturated markets into positive quarterly territory. The South continued to shine and moved into the top position, posting a yearly loss of only -12.1 percent.
The spread between regions continues to shrink as well, with a 9.0 point range between the lowest performing West region (-21.1%) and the highest performing South region (-12.1%) in terms of yearly price change. However, REO saturation rates remain very high in the West and Midwest, which typically increases the volatility of these markets and may add resistance to the continued closure of this gap as we head into the fall.
Metro Markets (June 26, 2008 – July 25, 2009)
The large quarterly gains among the highest performing markets continue to quickly shrink yearly losses. More than half of the highest performing markets doubled the quarterly gains reported last month. These gains reflect improving market demand allowing banks to receive a higher sales price for their REO properties, which can represent 60 percent of all sales in some regions.
Ohio’s markets continue to lead the Midwest with large quarterly gains relative to the market lows seen last winter. While the large gains are both impressive and informative with regard to demand for distressed properties, they are best interpreted in context of the market’s valleys and peaks. Cleveland’s prices match levels of early 2008, while Columbus and Cincinnati remain at price levels seen last fall. These levels place Cincinnati, the best performing of the three Ohio markets since they peaked in mid-2005, with a price change of -25.4 percent, while Cleveland remains -64.9 percent since that time. To illustrate this point, a typical lower priced home in Cleveland that was valued at $85,000 during the market’s peak in 2005, as an REO would likely have sold for $20,500 last winter, and today might sell for close to $30,000.
Additionally, while there was some improvement in the REO saturation rates, many of the top performing markets continue to stay at rates close to, or higher than, the national average of 33.1 percent. This reflects the continued impact of foreclosures, and indicates that the large quarterly gains are driven by positive price changes in REO properties.
While all of the lowest performing markets still show substantial negative price returns over the past year, they are showing signs of improvement. Twelve of the fifteen markets listed posted quarterly results no greater than a three percent decline, and none of them returned double digit quarterly losses. In addition, positive quarter-over-quarter returns in four of these markets further suggest wide-reaching improvement in price declines across the U.S.
Phoenix, the subject of our micro market report this month, is showing signs of improvement—posting a modest price change of -1.9 percent for the quarter. New York moved up the list into fourth position, despite slowing its quarterly decline over each of the prior two months. This change in New York’s ranking reflects the overall improvement among the rest of the markets more than a decline in the Northeastern markets.
As with the highest performing markets, REO saturation rates remain high, keeping large portions of these markets subject to additional volatility going forward. At the same time, the large proportion of distressed sales amid increased sale volumes may help keep escalating REO supply at bay, especially if demand continues into the fall.
Micro Markets (June 26, 2008 – July 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.
The Phoenix area saw the largest yearly declines among the major markets with losses reaching in excess of 40 percent. Driven in part by speculative investments and second home demand leading up to the end of the market’s price peak in mid 2006, the area has experienced a rate of decline that has only recently begun to soften.
With the market dominated by the populous Maricopa County (-42.4 percent for the year), it’s easy to overlook the performance of Pinal County (-29.6%) and some of Maricopa County’s peripheral cities. These locations make up nearly sixty percent of the MSA’s ZIP codes and saw more modest yearly price declines than the MSA as a whole.
One locality that was least affected by the market’s downturn and is currently experiencing a positive uptick is Sun Lakes (ZIP 85248), a large golfing community southeast of Phoenix that borders Pinal County. Over the past year, Sun Lakes experienced the best price performance in the Phoenix MSA with a price change of -15.2 percent. It also posted one of the lowest REO saturation rates at 18.0 percent. And recently, Sun Lakes reversed its downward pricing trend and joined a large portion of the nation with a slight positive quarterly gain of 1.2 percent.
While Sun Lakes boasts a median price that’s more than twice that of Maricopa and Pinal counties, this higher priced retirement community has been buoyed by its lower price segment, those homes priced below $180,000. These homes have posted a modest -12.2 percent drop in value over the past year, compared to -20.6 percent for homes priced over $340,000. It’s apparent that the more affordable homes within high-priced communities were the best sellers among retirement age home seekers (who likely held declining investment based incomes).
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