The growing gap between housing’s low and top tiers expected to restore healthy demand for first-time and move-up buyers
- Fifteen years into the new millennium, we are finally seeing real potential that the market can support full buyer momentum. 2015 has the promise of a transitional year where full buyer momentum in the low and mid tiers reinforce a strong housing recovery. Sustained national price growth in the low tier segment, once driven by investor activity, is good news for first-time homebuyers. Also encouraging, the number of potential move-up buyers locked into underwater mortgages has been steadily decreasing. The recent rise in home prices continue to bring more homeowners out of negative equity. With more equity to play with, mid tier homeowners could move-up, creating more opportunity and driving healthy demand in the low and mid tiers of the market.
- The top tier gives way, extending more opportunity to traditional buyers. While we are expecting price growth to moderate across all tiers in 2015, the top tier’s quarterly growth rate fell to 0.3% in the fourth quarter, where it had been holding steady at around 1% through the first three quarters of 2014. Year-over-year, this tier experienced the lowest price growth rate of 3.6% among the three national tiers. At its current pace, continued moderation in the top tier could push quarterly price growth into negative territory in 2015. January data also reveals the low tier holding on to double digit gains year-over-year at 10.2% and healthy quarter-over-quarter gains of 1.5%. This divide between a healthy low tier and stalling top tier could kick-off a domino effect. Stalling prices in the top tier of the market could create the perception of a good deal. This instills confidence in mid tier homeowners, motivating them to move-up to the top tier. In turn, this opens up more opportunity for low tier homeowners to move-up to the mid tier. Creating new opportunity in the low tier could entice potential first-time homebuyers to enter the market. This domino effect could be the catalyst for balanced demand across all sectors of the market.
- Regionally, the Midwest continues to lead the pack. Year-over-year the Midwest held on to double digit gains in the low tier segment at 13.6%, while the top tier fell to 3.3%. We also observe this gap between growth in the low and top tiers on a quarterly basis, with the low tier growing at 1.7% and relatively flat growth in the top tier at 0.5%. The Midwest led the nation in the all tier segment, with quarter-over-quarter growth at 0.9%, narrowly edging the West at 0.7%. The Midwest is the only region currently seeing price appreciation in the low and mid tiers, growing concurrently above 1%. A moderating top tier could incentivize mid tier homeowners in 2015 to move-up, setting up the Midwest to be the first region to realize full buyer momentum across all segments.
“We continue to observe the growing price performance gap between the top and bottom segments of the market,” says Dr. Alex Villacorta, vice president of research and analytics at Clear Capital. “The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand. While this is a concerning development, there is a silver lining. The moderating upper tier may give traditional buyers a moment to catch their breath, and entice move-up buyers to enter this segment of the market. The ripple effect of opening up inventory all the way down the price spectrum could provide opportunity and motivation across all segments, including first-time buyers, to enter the marketplace. The hope is that strength in the low and mid tiers help restore confidence in a stable housing market, and traditional homebuyers re-engage. The next phase of the housing recovery is dependent on healthy demand from this segment.”
Graph 1: Top Tier Price Moderation Could Stimulate Healthy Housing Demand. Source: Clear Capital
| National and Regional Markets | ||||||||||
| Market | Qtr/Qtr% +/- | Yr/Yr | Distressed Saturation | |||||||
| National | 0.7% | 6.1% | 17.2% | |||||||
| Midwest | 0.9% | 7.5% | 19.0% | |||||||
| West | 0.7% | 7.9% | 12.8% | |||||||
| South | 0.7% | 5.7% | 21.7% | |||||||
| Northeast | 0.5% | 2.8% | 13.1% | |||||||
Chart 1: National and Regional Markets – January 2015. Source Clear Capital
| Highest Performing Major Metro Markets | ||||||||||
| Rank | Metropolitan Statistical Area | Qtr/Qtr% +/- | Yr/Yr | Distressed Saturation | ||||||
| 1 | DETROIT-WARREN-LIVONIA, MI | 2.9% | 18.3% | 19.3% | ||||||
| 2 | MILWAUKEE-WAUKESHA-WEST ALLIS, WI | 1.7% | 7.9% | 16.7% | ||||||
| 3 | NEW ORLEANS-METAIRIE-KENNER, LA | 1.7% | 8.6% | 16.1% | ||||||
| 4 | PITTSBURGH, PA | 1.7% | 10.9% | 10.4% | ||||||
| 5 | ATLANTA-SANDY SPRINGS-MARIETTA, GA | 1.7% | 12.3% | 19.8% | ||||||
| 6 | DENVER-AURORA, CO | 1.4% | 9.8% | 7.5% | ||||||
| 7 | MEMPHIS, TN-MS-AR | 1.3% | 6.5% | 27.2% | ||||||
| 8 | CHICAGO-NAPERVILLE-JOLIET, IL-IN-WI | 1.1% | 8.3% | 28.3% | ||||||
| 9 | NASHVILLE-DAVIDSON–MURFREESBORO, TN | 1.1% | 8.4% | 11.8% | ||||||
| 10 | DALLAS-FORT WORTH-ARLINGTON, TX | 1.1% | 8.7% | 3.8% | ||||||
| 11 | SEATTLE-TACOMA-BELLEVUE, WA | 1.1% | 8.7% | 14.5% | ||||||
| 12 | MIAMI-FORT LAUDERDALE-MIAMI BEACH, FL | 1.1% | 11.4% | 28.7% | ||||||
| 13 | CINCINNATI-MIDDLETOWN, OH-KY-IN | 1.0% | 7.9% | 20.0% | ||||||
| 14 | LOS ANGELES-LONG BEACH-SANTA ANA, CA | 1.0% | 9.3% | 10.6% | ||||||
| 15 | HOUSTON-BAYTOWN-SUGAR LAND, TX | 1.0% | 9.8% | 4.7% | ||||||
Chart 2: Highest Performing Major Metro Markets – January 2015. Source Clear Capital
| Lowest Performing Major Metro Markets | ||||||||||
| Rank | Metropolitan Statistical Area | Qtr/Qtr% +/- | Yr/Yr | Distressed Saturation | ||||||
| 1 | PROVIDENCE-NEW BEDFORD-FALL RIVER, RI-MA | -0.8% | -1.0% | 16.5% | ||||||
| 2 | HARTFORD-WEST HARTFORD-EAST HARTFORD, CT | -0.6% | -3.6% | 15.7% | ||||||
| 3 | BALTIMORE-TOWSON, MD | -0.3% | -0.5% | 23.1% | ||||||
| 4 | HONOLULU, HI | -0.2% | 2.2% | 7.8% | ||||||
| 5 | ROCHESTER, NY | 0.1% | 0.5% | 9.3% | ||||||
| 6 | BIRMINGHAM-HOOVER, AL | 0.1% | 3.1% | 15.4% | ||||||
| 7 | VIRGINIA BEACH-NORFOLK-NEWPORT NEWS, VA-NC | 0.2% | 1.4% | 22.4% | ||||||
| 8 | BOSTON-CAMBRIDGE-QUINCY, MA-NH | 0.2% | 4.1% | 8.5% | ||||||
| 9 | WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA-MD-WV | 0.3% | 4.1% | 14.9% | ||||||
| 10 | RICHMOND, VA | 0.4% | 4.7% | 18.0% | ||||||
| 11 | PHILADELPHIA-CAMDEN-WILMINGTON, PA-NJ-DE-MD | 0.5% | 2.8% | 19.2% | ||||||
| 12 | RALEIGH-CARY, NC | 0.5% | 3.8% | 8.3% | ||||||
| 13 | LAS VEGAS-PARADISE, NV | 0.5% | 7.3% | 21.8% | ||||||
| 14 | NEW YORK-NORTHERN NEW JERSEY-LONG ISLAND, NY-NJ-PA | 0.6% | 4.5% | 11.7% | ||||||
| 15 | PHOENIX-MESA-SCOTTSDALE, AZ | 0.6% | 5.6% | 14.0% | ||||||
Chart 3: Lowest Performing Major Metro Markets – January 2015. 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.
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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.
