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What’s in Store for Housing in 2016?
Is slow, sustained growth a return to normalcy or a sign of continued volatility ahead?
Reno, NV — January 11, 2016
The overall Clear Capital® Home Data Index™ (HDI™) forecast for the nation throughout 2016 is positive, with projected home price appreciation in the range of 1% to 3% by January 2017. Although this range historically has represented a stable housing market, it’s significantly lower than the 5.1% growth rate during 2015 and the 6.6% growth rate in 2014, demonstrating continued market instability and a trend of decreasing rates (see Graph 1). While we would love to sugarcoat the HDI data and declare that 2016 merely will be a normalization of the housing market to historical averages not seen since the late 1990s, several factors indicate that it could be another volatile year leading to ongoing uncertainty about the future of American housing.
Graph 1. Source: Clear Capital®
Ultimately, overall national growth will be positive throughout 2016, but these rates are underwhelming and signal the end of the explosive growth typical of the first half of this decade. The forecast is predicting an average of only 0.4% quarter-over-quarter (QoQ) growth for each quarter during 2016 (see Graph 2). Growth in this range is rather lackluster when compared to the previous two years, when home prices grew by an average of 1.5% quarterly over the period from January 2014 to January 2016.
- Homes in the low tier (selling below $116, 000 nationwide) are forecasted to appreciate more significantly than other tiers during the next year, averaging just under 1.0% quarterly growth throughout 2016. By definition, the low tier is affordable to the widest range of potential homeowners and investors. This larger class of buyers will likely cause continued higher appreciation for the country’s most affordable home tier.
- The overall trend of decreasing rates of growth during 2016 will primarily affect the middle price tier—representing the middle 50% of all transactions, currently comprised of homes selling between $116, 000 and $337, 500 nationwide. While growth in the middle price range is not projected to be the lowest of all the price tiers, the mid tier shows a consistent decrease in quarterly growth over the forecast period, falling from 0.5% QoQ growth in January 2016 to just under 0.2% QoQ by the end of the year.
- Conversely, the top price tier (homes selling above $337, 500 nationwide) forecasts relatively consistent quarterly growth, hovering around the 0.2% QoQ mark. Historically, pricing in this class of homes has moved slowly in the sense that gains and losses both have been smaller by percentage due to higher initial prices. The contrast to the low tier highlights the diversity in performance that remains in today’s real estate market.
Graph 2. Source: Clear Capital®
The forecast also shows a similar story for the Northeast, South, and Midwest regions of the nation: positive but relatively slow gains (see Chart 1). The Midwest is projected to be the fastest-growing region in the country with an average rate of 0.6% quarterly growth (2.5% annual) over the forecast period, while the South is close behind with an average of 0.5% QoQ growth (2.0% annual) during the same period. The Northeast lags behind these regions, projecting an average uptick of only 0.1% QoQ growth (0.4% annual) throughout 2016.
- The story is quite different for the West. In fact, the rapidly accelerating gains prominent in many of the Western metros are projected to level-off entirely in Q2 2016, which will be the first time the region has seen quarterly performance this low since January 2012. The West, which has largely outpaced the rest of the nation in terms of growth in the last several years, is beginning to see market slowing across some of its major metropolitan statistical areas (MSAs). Because Western markets began to slow in the latter half of 2015, San Francisco, Los Angeles, and San Diego are currently seeing QoQ growth rates under 1.0%, while other cities like San Jose and Denver are now hovering slightly higher at around 1.3% and 1.5% QoQ, respectively. At an annualized rate, these current levels would project to roughly half of the performance seen in 2015. While slower growth is typical during the winter real estate off-season, it remains to be seen how or if the markets will adjust once the typical market rush of spring begins.
|National and Regional Markets|
|Market||Qtr/Qtr % +/-||Yr/Yr||Distressed Saturation||2016 Forecast|
Chart 1: National and Regional Markets – through December 2015. Source: Clear Capital®
Generally, year-over-year growth rates are forecasted to be lower for all MSAs in the nation, with no exceptions (see Chart 2). The highest growth in 2016 is forecasted to occur in Denver, where home prices are projected to grow by 7.7% during the course of the upcoming year, compared to the 11.7% annual growth seen in 2015.
- While slower growth plagues the forecasts of all major cities across the nation, the luxury markets are among the hardest hit. Miami and San Jose are projected to grow by only 1.3% and 1.4% respectively during 2016, after each MSA saw market growth in excess of 10% during 2015. Other cities like Chicago, New York, and San Francisco are forecasted to see significant changes to their 2015 performance, with little to no growth for the upcoming year.
- Home price appreciation in Detroit, which saw an uncharacteristic increase in QoQ growth toward the end of 2015, is forecasted to fall 5.8% over the course of 2016. This is compared to annual growth in excess of 11% in 2015, making Detroit one of the hardest-hit MSAs of the forecast. Since May 2013, the Detroit MSA has seen declining quarterly gains in 9 of 10 quarters, with the most recent quarter less than half of the Q3 2015 market performance. Based on this rapidly decelerating rate of price growth, it is quite possible this metro turns negative by year end.
- Contact Brian Opsal for your December 2015 file of the Top 30 MSAs or to access our data on the Bloomberg Professional service by typing CLCA < GO> .
|Top 50 Performing Major Metro Markets|
|Rank||Metropolitan Statistical Area||Qtr/Qtr % +/-||Yr/Yr||Distressed Saturation||2016 Forecast|
|2||DALLAS-FORT WORTH-ARLINGTON, TX||1.1%||9.4%||2.9%||7.1%|
|5||LAS VEGAS-PARADISE, NV||0.9%||8.9%||17.7%||3.9%|
|8||HOUSTON-BAYTOWN-SUGAR LAND, TX||1.0%||8.6%||3.4%||3.4%|
|10||ATLANTA-SANDY SPRINGS-MARIETTA, GA||1.2%||8.6%||15.9%||3.2%|
|18||MILWAUKEE-WAUKESHA-WEST ALLIS, WI||0.6%||4.7%||15.6%||2.1%|
|19||NEW ORLEANS-METAIRIE-KENNER, LA||0.5%||4.5%||19.5%||1.9%|
|22||ST. LOUIS, MO-IL||0.6%||5.7%||17.1%||1.9%|
|23||HARTFORD-WEST HARTFORD-EAST HARTFORD, CT||0.7%||2.8%||17.0%||1.5%|
|24||SAN JOSE-SUNNYVALE-SANTA CLARA, CA||1.3%||10.2%||3.9%||1.4%|
|25||MIAMI-FORT LAUDERDALE-MIAMI BEACH, FL||1.3%||10.4%||24.1%||1.2%|
|26||RIVERSIDE-SAN BERNADINO-ONTATIO, CA||0.8%||6.0%||12.8%||1.1%|
|29||OXNARD-THOUSAND OAKS-VENTURA, CA||0.7%||4.4%||7.6%||0.9%|
|30||VIRGINIA BEACH-NORFOLK-NEWPORT NEWS, VA-NC||0.0%||2.2%||19.1%||0.9%|
|34||SAN DIEGO-CARLSBAD-SAN MARCOS, CA||0.9%||6.4%||9.0%||0.5%|
|36||LOS ANGELES-LONG BEACH-SANTA ANA, CA||0.9%||7.3%||8.9%||0.2%|
|41||MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN-WI||0.6%||5.4%||8.8%||-0.4%|
|43||NEW YORK-NORTHERN NEW JERSEY-LONG ISLAND, NY-NJ-PA||0.7%||5.0%||11.4%||-0.9%|
|50||PROVIDENCE-NEWBEDFORD-FALL RIVER, RI-MA||0.5%||-0.6%||13.8%||-6.1%|
Chart 2. Top 50 Forecasted Metros – Data through December 2015. Source: Clear Capital®
“The market continues to move forward, yet the bumps of volatility still remain, ” says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. “In particular, the combined forces of increased mortgage rates, volatility in the equity markets, and the unfolding effects of TRID are likely to give consumers pause in taking an active role in housing in 2016. The psychological effects of the recent interest rate increase could have a more negative consequence in some markets than the actual rate hike itself, as buyers begin to question the decision to invest in the housing market at what looks like the end of a meteoric four-year growth cycle. This, coupled with the fact that several of the fastest-growing MSAs have already begun to slow down or stagnate even before the rate increase occurred, could spell trouble for the national housing market as a whole if overseas investors begin to look elsewhere for money-parking strategies. However, there are still attractive investment opportunities in at least one corner of the market; the lowest tier of the housing market still holds the most promise, as long as the potential home buyers of this market segment aren’t forced out due to the increasing cost to borrow.
“The long-term effects of some recent housing industry shake-ups are still out, but the models have reacted in a pessimistic way. With the nation projected to grow at a snail’s pace in some regions while virtually standing still in others, our models are taking into account the effects of the interest rate increase by the Fed in December 2015. Industry shocks like this have the potential to affect the market in unfavorable ways, lowering consumer confidence and instilling some level of doubt in the industry. While the real estate market is typically cold in January, it’s difficult to tell if the effects of these market changes have been realized quite yet. Until the market gets a chance to really heat up again—or not—in the spring, our models are staying consistent and forecasting a significant drop in growth for 2016.”
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 is a nationwide provider of real estate valuations, data and analytics, quality assurance services and technology solutions. The Company’s customers include mortgage lenders, servicers, investors, GSEs, and Ratings Agencies. Clear Capital products include appraisals, broker price opinions, property condition inspections, value reconciliations, appraisal review and risk scoring, automated valuation models, and home data indices. The Company’s innovative technology, experienced valuation experts, 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. Morningstar Credit Rating issued Clear Capital its highest Residential Vendor Ranking – MOR RV1. 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