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The September Issue: What’s Fashionable In Housing
As distressed saturation rates rise across the nation, are REOs in vogue again?
Reno, NV — September 1, 2015
Once a stain on housing, REOs and short sales are a reminder of the legacy of the housing downturn. Investors, seeking discount prices, transformed what was once undesirable into fashion-forward, instant cash flow in key markets. While in other markets, distressed inventory still hinders overall prices from getting a leg-up. With stocks plummeting last week and the global economic impact on our domestic economy and housing markets still unknown, distressed sales continue to be a critical market indicator. Just like in the fashion industry’s iconic September issue, learn to be a trendsetter—from stateside to Puerto Rico—by letting distressed market measures give you full perspective of the market.
- Nationwide, quarterly distressed saturation (or the percentage of REOs and short sales to all sales) increased by 0.7% in August 2015, from 15.4% to 16.1%. While we are closer to historic, pre-2008 rates of distressed saturation which hovered around 4% of all sales, increases in distressed activity leading into winter could shift momentum towards peak distressed saturation levels of 40%. Typically, we see distressed saturation fluctuate with the seasons and increase in the winter season. The West’s and Midwest’s distressed saturation rates have exceeded that of the nation, increasing by 0.9% and 1.2%, respectively, while we observe the largest gains in distressed saturation in the South, with a 1.5% increase from 18.6% to 20.1%. The Northeast was the only region to experience a decrease in distressed saturation, where rates dipped 0.3% from 14.3% to 14.0%.
- For the past three years, distressed saturation in the San Juan (Puerto Rico) MSA has been steadily increasing, having grown eight percentage points, from a reading of 9% in 2013 to 17% today. This trend is unusual in the current housing environment. Over the same three year period, nearly all of the major metro markets have experienced steady declines in distressed saturation. In terms of pricing, this near doubling of the saturation rate has corresponded with a rapid change in price declines from a yearly loss of 1.5% in 2013 to a yearly rate of decline of 10.2% today. (Graph 1)
- The Midwest is the only region to see quarterly gains in price appreciation, nearly doubling from 0.4% to 0.7%. The region still lags behind the West, which experienced declining gains of 0.1 percentage points, yet still continues to report highest quarterly growth at 1.2%. The South and Northeast appreciation rates remained stagnant, reporting 0.8% and 0.2% growth over the quarter. (Chart 1)
- Regional performance is echoed at the MSA-level. The San Jose, CA and Detroit, MI MSAs both report healthy growth rates of 2.1%. While the South did not see accelerated price gains, continued growth through August could be a sign that this region is on firm footing moving forward. Seven of the 15 top performing markets (Chart 2) are located in the South, while four of the lowest performing MSAs (Chart 3) are in the Northeast.
- Contact Brian Opsal for your August 2015 file of the Top 30 MSAs or access our data on the Bloomberg Professional service by typing CLCA <GO>.
“Distressed saturation continues to be a challenge we face in today’s housing market,” says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital®. “In fact, today’s ‘traditional’ housing market continues to be defined by distressed saturation levels. In Act One, at the start of the downturn, distressed properties were an albatross around housing’s neck. In Act Two, between 2011 and 2013, investors stepped in, buying, rehabbing and selling or renting distressed properties, which gave way to higher demand and rising prices.
“While the overall effect of higher rates of distressed saturation in Act Three of the recovery is unknown, one thing is clear; when it comes to housing, REOs and short sales are not a passing fad. Last week’s crash leaves the economy and housing tenuous at best, especially as we move from the promise of the summer buying season. The last third of the year will reveal whether the housing recovery can withstand broader global volatility. If investors pull out, oversupply of distressed inventory could bring us back to Act One. Or, a renewed source of distressed inventory could revive demand from investors and traditional homebuyers, alike, in an inventory-starved market. The driving factor will be whether traditional consumers will be willing, and more importantly, be able to participate. As the global and domestic economic outlook unravels, we will continue reporting on its effect on housing.”
|National and Regional Markets|
|Market||Qtr/Qtr% +/-||Yr/Yr||Distressed Saturation|
Chart 1. National and Regional Markets through August 2015. Source: Clear Capital®
|Highest Performing Major Metro Markets|
|Rank||Metropolitan Statistical Area||Qtr/Qtr% +/-||Yr/Yr||Distressed Saturation|
|1||SAN JOSE, CA – SUNNYVALE, CA – SANTA CLARA, CA||2.1%||9.3%||4.0%|
|2||DETROIT, MI – WARREN, MI – LIVONIA, MI||2.1%||13.2%||17.6%|
|3||LAS VEGAS, NV – PARADISE, NV||1.8%||7.9%||18.1%|
|4||DENVER, CO – AURORA, CO||1.7%||11.9%||5.8%|
|5||SEATTLE, WA – TACOMA, WA – BELLEVUE, WA||1.6%||10.4%||10.9%|
|7||MIAMI, FL – FT. LAUDERDALE, FL – MIAMI BEACH, FL||1.6%||9.8%||24.6%|
|8||DALLAS, TX – FORT WORTH, TX – ARLINGTON, TX||1.6%||10.3%||3.8%|
|9||TAMPA, FL – ST. PETERSBURG, FL – CLEARWATER, FL||1.5%||8.6%||27.4%|
|10||SAN FRANCISCO, CA – OAKLAND, CA – FREMONT, CA||1.5%||8.7%||6.2%|
|11||CHARLOTTE, NC – GASTONIA, NC – CONCORD, NC||1.5%||7.2%||8.5%|
|12||PORTLAND, OR – VANCOUVER, WA – BEAVERTON, OR||1.4%||7.5%||9.3%|
|13||ATLANTA, GA – SANDY SPRINGS, GA – MARIETTA, GA||1.4%||8.9%||15.7%|
|14||SACRAMENTO, CA – ARDEN, CA – ROSEVILLE, CA||1.4%||7.0%||11.1%|
Chart 2. Highest Performing Major Metro Markets through August 2015. Source: Clear Capital®
|Lowest Performing Major Metro Markets|
|Rank||Metropolitan Statistical Area||Qtr/Qtr% +/-||Yr/Yr||Distressed Saturation|
|1||PROVIDENCE, RI- NEW BEDFORD, MA – FALL RIVER, MA||-1.2%||-9.1%||14.5%|
|2||BALTIMORE, MD – TOWSON, MD||-0.3%||-2.3%||24.9%|
|5||MILWAUKEE, WI, – WAUKESHA, WI – WEST ALLIS, WI||0.2%||5.2%||15.9%|
|6||BOSTON, MA – CAMBRIDGE, MA – QUINCY, MA||0.3%||1.3%||8.1%|
|7||CLEVELAND, OH – ELYRIA, OH – MENTOR, OH||0.3%||1.9%||17.9%|
|8||NEW ORLEANS, LA – METAIRIE, LA – KENNER, LA||0.3%||4.9%||16.1%|
|9||WASHINGTON, DC – ARLINGTON, VA – ALEXANDRIA, VA||0.4%||2.1%||12.6%|
|11||OXNARD, CA – THOUSAND OAKS, CA – VENTURA, CA||0.4%||4.5%||8.5%|
|13||PHILADELPHIA, PA – CAMDEN, NJ – WILMINGTON, DE||0.6%||3.3%||16.4%|
|14||HOUSTON, TX – BAYTOWN, TX – SUGARLAND, TX||0.6%||9.2%||3.3%|
|15||RALEIGH, NC – CARY, NC||0.6%||4.3%||6.3%|
Chart 3. Lowest Performing Major Metro Markets through August 2015. Source: Clear Capital®
Graph 1. Growth of distressed saturation and decline of annual price change in San Juan, PR MSA. 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 (www.clearcapital.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.
Vice President, Marketing