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Brian Opsal

Vice President, Marketing

brian.opsal@clearcapital.com

Phone: 530.550.2546

The Rise of the Low Tier

Does this signal a change in investment strategies?

 

Reno, NV — November 2, 2015

 

An increasingly common phenomenon across the county is the schism in price growth between high end and low end properties. While recent discussions suggest that the market is generally normalizing, our data reveals that there are drastically different dynamics going on at the extremes of nearly all markets. In evaluating these extremes, the investment potential appears to be leaning towards the low price tier.[1]

  • When looking at the price tier growth differences in conjunction with distressed saturation, MSAs with some of the highest distressed saturation rates like Detroit, Orlando, and Miami show low tier year-over-year growth outpacing that of the top tier by large margins, in some cases by more than 20%. This is most likely due to high levels of investor activity in the low price tiers, which also typically represent the majority of distressed activity. However, the top tiers of these markets appear to be lagging significantly in comparison.
  • The San Jose MSA was knocked off its top spot by the Detroit, MI MSA, where quarter-over-quarter growth is an impressive 2.4%. Apart from Detroit, MI, most markets appear to be slowing down for the slow fall and winter real estate seasons.  In another shakeup, Las Vegas, NV QoQ growth fell from by 0.5% from 2.0% to 1.5% QoQ growth this month.
  • For Detroit, overall QoQ growth is currently the highest in the nation at 2.4%, but there are some pretty significant differences between its high and low end properties. The Detroit low tier is showing an extremely impressive 4.2% QoQ growth, while its highest tier is growing at a much slower pace, only 0.8% QoQ.
  • The story is the same in Miami, the top tier of the housing market is growing by an otherwise impressive 0.6% QoQ and 4.9% YoY; however, the lowest tier of the market appears to be sprinting ahead with 2.7% QoQ growth and 15.5% YoY growth. These kinds of disparities between the low and top tiers are obfuscated when looking at the growth figures for the entire market as a whole, and could lead to missed opportunities for investors who are only looking at the headlining figures, or worse, disappointing returns for those who are investing on higher end properties.

 

“As the housing recovery continues to unfold, we are clearly seeing a growing dichotomy between the low price tier and top price tier market performance. By and large, the low price tiers of the Top and Bottom MSAs are significantly outperforming their top tier counterparts. For both first time home buyers and investors, this should signal a major opportunity in these lower tiers,” says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. “For any buyers of high end properties this clear trend signals the need to be highly vigilant with investment strategies in this market segment.”

 

[1] The low tier is defined as the bottom 25% of all transactions for each respective market, and top tier is defined as the top 25% of all transactions for each respective market.

 

 

National and Regional Markets
Market Qtr/Qtr% +/- Yr/Yr Distressed Saturation
National 0.9% 5.2% 15.9%
West 1.0% 7.3% 11.2%
Northeast 0.4% 2.0% 13.7%
South 0.9% 5.9% 19.4%
Midwest 0.9% 4.7% 18.2%

Chart 1. National and Regional Markets through October 2015. Source: Clear Capital®

 

 

high msa's 300 word

Chart 2. Highest Performing Major Metro Markets through October 2015. Source: Clear Capital®

 

 

low 300 word

Chart 3. Lowest Performing Major Metro Markets through September 2015. Source: Clear Capital®

 

 

Graph2_BottomMSAs

Graph 1: Comparison of Top and Low Price Tier growth over the last rolling year for the current top 15 performing markets. Source: Clear Capital®

 

 

 

Graph1_TopMSAs

Graph 2: Comparison of Top and Low Price Tier growth over the last rolling year for the current bottom 15 performing markets Source: Clear Capital®

 

 

About the Clear Capital® Home Data Index (HDI) Market Report

The Clear Capital HDI Market Report 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 the HDI Market Report is the capability of Clear Capital to provide more timely and granular reporting than nearly any other home price index provider.

The Clear Capital® HDI Market Report

  • Offers the real estate industry (investors, lenders, and servicers), government agencies, and the public insight into the most recent pricing conditions, not only at the national and metropolitan level, but within local markets as well.
  • Is built on the most recent information available from recorder/assessor offices, and then further enhanced by adding the company’s proprietary streaming market data for the most comprehensive geographic coverage and local insights available.
  • Reflects nationwide coverage of sales transactions and aggregates this comprehensive dataset at ten different geographic levels, including hundreds of metropolitan statistical areas (MSAs) and sub-ZIP code boundaries.
  • Includes equally-weighted distressed bank owned sales (REOs) from around the country to give the most real world look of pricing dynamics across all sales types.
  • Allows for the most current market data by providing more frequent updates with patent pending rolling quarter technology. This ensures decisions are based on the most up-to-date information available.

 

Clear Capital® 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 the multi-month lag time 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.

 

About Clear Capital®

Clear Capital (clearcapital.wpengine.com) is the premium provider of data and solutions for the mortgage finance industry. The Company’s products include appraisals, broker price opinions, property condition inspections, value reconciliations, automated valuation models, quality assurance services, 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 the largest U.S. banks, investment firms, and other financial organizations. Clear Capital’s home price data can be accessed on the Bloomberg Professional service by typing CLCA ‹GO›.

 

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.

 


Brian Opsal

Vice President, Marketing

brian.opsal@clearcapital.com

Phone: 530.550.2546