The September 2021 Home Data Index™ (HDI™) Market Report shows national quarter-over-quarter (QoQ) home price growth is at 6.3 percent.
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* Note that due to unprecedented conditions in spring 2020 (due to COVID restrictions) and tight inventory in spring 2021, the year-over-year numbers based upon paired sales in certain rapidly-rising markets (like Phoenix) may be overstated. In that case, we encourage the consideration of the additional year-over-year comparison based upon price-per-square-foot, which may be more in line with market dynamics in this situation.
Commentary by Brent Nyitray of The Daily Tearsheet
The recent strong home price appreciation continued in September, according to our Clear Capital Home Data Index. Prices rose 19.2% nationally, and 6.3% on a quarter-over-quarter (QoQ) basis. Keep in mind that the year-over-year (YoY) comparisons can be affected by COVID-related statistical noise, but the overall trend of double-digit home price appreciation is real. Both Case-Shiller and the FHFA House Price Index are reporting similar national appreciation.
Out West, prices rose 24% overall. Phoenix, Arizona was again the leader, rising 55%. Phoenix remains an outlier. However, the rapid increase was confirmed by the price-per-square-foot metric, which rose 31%. Other top Western metros include Las Vegas (up 24% YoY), Portland, Oregon (up 19% YoY) and Tucson, Arizona (up 24% YoY).
The South was the next best performer, with prices up nearly 20%. The top performers in this region were Tampa, Florida (up 29% YoY), Raleigh, North Carolina (up 24% YoY) and Orlando, Florida (up 23% YoY).
The Midwest was the lowest performer, with prices rising a mere 16% YoY. There were no Midwestern metropolitan statistical areas (MSAs) as top performers, however we still saw prices up 18% YoY in Columbus, Ohio and 13% YoY in St. Louis, Missouri.
In the Northeast, prices rose 17.5%. Rochester, New York was the leader here with 20% YoY growth. Philadelphia was up 16% YoY while Hartford, Connecticut rose 17% YoY.
The lowest performing MSAs were San Antonio, where prices fell 5% YoY and Honolulu, where they still rose 7% YoY. No MSAs aside from San Antonio reported a QoQ decline.
The Evergrande situation in China could have reverberations in the United States, and should be monitored accordingly. Real Estate developer Evergrande has missed interest payments and will likely default on at least a portion of its debt. The company owes $300 billion to creditors. To put that number into perspective, the US bailout of Fannie Mae and Freddie Mac in 2008 cost the U.S. Treasury $200 billion. So, Evergrande is a big deal, and could prove to be the catalyst that finally pricks the Chinese real estate bubble.
According to some estimates, Chinese real estate accounts for 29% of gross domestic profit (GDP), which is enormous considering it is a single-digit percentage for most countries. This is comparable with the U.S. in the 1920s and Japan in the late 1980s. Real estate bubbles seem accompany periods when countries experience decades of hyper-growth, and misallocation of resources seems almost inevitable. China has pre-built entire cities in anticipation of future demand, which takes this concept to a completely new level.
While most U.S. banks are claiming they don’t have exposure to Evergrande, bursting real estate bubbles generally expel a lot of shrapnel. In the U.S., Chinese investors will probably turn net sellers of U.S. real estate as they raise liquidity. In financial crises, investors sell what they can, not necessarily what they want to. This will probably affect places like Vancouver, San Francisco, and New York City. Since there is a massive inventory problem in the US, this should help alleviate the shortage at least somewhat, though people are already leaving places like San Francisco for cheaper locales like Phoenix and Las Vegas.
Economically, a burst Chinese real estate bubble will put an end to China’s multi-decade run of high single-digit real GDP growth. The most immediate effect will probably be seen in declining commodity prices. Since China will almost certainly try and export its way out of its economic funk, the trade deficit in the US will rise. This will work to push US rates lower. Ironically, this could help support real estate prices in the United States.
While Chinese selling should help the supply and demand imbalance at least partially, we need to see more homebuilding domestically. U.S. Housing starts are still at the same level they were in 1959, despite an 85% increase in population. The lack of building was initially due to post-bubble issues. However, they were replaced by new ones. Labor remains the biggest constraint. While a lack of skilled labor has bedeviled the builders for years, unskilled labor is an issue now.
The Fed really doesn’t have a good theory as to why unskilled labor is so hard to find. They attribute it to a mishmash of reasons including COVID, childcare concerns, and stimulus payments. The million-dollar question is whether this will raise wages going forward. On one hand, companies are raising wages to attract talent, but they are also making capital expenditures which will almost certainly include labor-saving technology.
Rising wages will almost certainly prove to be good for real estate prices, and if the COVID-19 pandemic has shown us anything, it is that white collar workers can do their jobs from anywhere. People are leaving high-priced areas for cheaper ones. We are starting to see perennial laggard MSAs like Rochester, Hartford, and Cleveland see big jumps in pricing. This could be the next trend in U.S. real estate markets.
About the Clear Capital Home Data Index™ (HDI™) Market Report and Forecast
The Clear Capital HDI Market Report and Forecast 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 Clear Capital’s HDI Market Report and Forecast is the capability to provide more timely and granular reporting than nearly any other home price index provider.
Clear Capital’s 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 multi-month lag time that may be 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.
The information contained in this report and forecast 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.