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Home Value Forecast: An East Coast CBSA Cracks Top Ten List

Home Value Forecast’s top ten ranking lately has been been dominated by West Coast CBSAs, mostly from California and Washington state. This month is no different, with seven of our top ten from those two states.

There is one exception to the West Coast domination in this month’s top ten, the Durham-Chapel Hill, NC CBSA has been added. Let’s take a deeper look at the area and what is driving the market.

Durham-Chapel Hill, NC

The Durham-Chapel Hill, NC CBSA, along with Raleigh, NC make up North Carolina’s “Research Triangle,” now simply called “The Triangle.”

The history can be traced back to 1959 when the North Carolina Research Triangle Park was built. Top research universities of the area, including the University of North Carolina – Chapel Hill and Duke, were producing graduates in science and engineering that were leaving the area to start careers. As a result, the research park was created to help keep those students (and their salaries) in the area.

More than 50 years later, the high tech, medical and banking industries are leading the way in keeping those students and salaries in the area.

So what about the real estate market? Here at HVF we often talk about “market fundamentals” and how we like it when the housing market is driven by fundamentals, not speculation. Well, the Durham-Chapel Hill CBSA is all about fundamentals.

Home Price vs. Employment

When we look at home price versus employment for the area, we see both tracking each other nicely, with no “bubble” in price that can’t be explained. The Durham-Chapel Hill CBSA home price has been tracking employment nicely for the last 20 years:

Real-Estate-Market-Trends-June-2016-2

What we don’t like to see is a “bubble” – where prices spike far above employment, like what was seen in the Miami CBSA between 2003 and 2007:

Real-Estate-Market-Trends-June-2016-3

Spikes in price without a corresponding rise in employment and wages can lead to a bubble that will burst. Fortunately, things in Miami now seem to be tracking more in line with supply and demand fundamentals.

Price and Household Income

Home prices in the Durham-Chapel Hill CBSA have also been tracking well against household income, another indicator of a healthy market:

Leading to all-time highs on a per square foot living area for both cities:

Chapel Hill, NC:

Real-Estate-Market-Trends-June-2016-5

Durham, NC:

Real-Estate-Market-Trends-June-2016-6

Affordability

Finally, we look at the Affordability Index. Affordability is derived by looking at the median income for a particular area as a ratio to the mortgage payment needed to purchase a median priced home. An index score above 100 signifies that a household earning the median income has more than enough income to afford the mortgage. Lower scores suggest more income is needed to cover mortgage expenses. The Collateral Analytics Affordability Index used by Home Value Forecast also looks at loan-to-value norms for a particular area to adjust for more affluent buyers usually putting more money down.

Real-Estate-Market-Trends-June-2016-1

Affordability today in the Durham-Chapel Hill CBSA is at 162, from a high of 209 in 2013 and a low of 124 in 2007. In all, the area is more affordable than the average index of 100 for the U.S., making salaries go farther when purchasing a home.

Before the crash, affordability peaked at 165 and hit a low of 125 – a 24.24% drop. Let’s go back and look at Miami again:

Real-Estate-Market-Trends-June-2016-12

In Miami before the crash, affordability peaked at 130 and hit a low of 48 – a 63.08% drop. Now they are back to a sustainable level – somewhere they hopefully stay for a while.

With tighter credit policy, the “hot” markets we see today are mostly based on employment and household income gains – with cities like San Francisco, Dallas and now Durham-Chapel Hill leading the way.

CBSA Winners and Losers

Each month, Home Value Forecast uses a number of leading real estate market-based indicators to rank the single-family home markets in the top 200 CBSAs and highlight the strongest and weakest metros.

The ranking system is purely objective and is based on directional trends. Each indicator is given a score based on whether the trend is positive, negative or neutral for that series. For example, a declining trend in active listings would be positive, as will be an increasing trend in average price. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators. From the universe of the top 200 CBSAs, we highlight each month the CBSAs which have the highest and lowest composite scores.

The tables below show the individual market indicators that are being used to rank the CBSAs, along with the most recent values and the percent changes. We have color-coded each of the indicators to help visualize whether it is moving in a positive (green) or negative (red) direction.

Top 10 CBSAs:

Real-Estate-Market-Trends-June-2016-8

Yuba City, forty miles north of Sacramento, was hit hard by the housing crisis — with REO Sales as a percentage of total sales peeking over 60% in 2008.

Real-Estate-Market-Trends-June-2016-9

Today, that number is down to 4.43%, well within historic norms. Today, Yuba has a very limited housing supply, with only 2.5 Months of Remaining Inventory (MRI). With such limited supply, prices should continue to rise.

Bottom 10 CBSAs:

Real-Estate-Market-Trends-June-2016-10

We started by looking at the affordability index for the Durham-Chapel Hill, NC CBSA, where the trend line has been falling as the local real estate market has taken off. In Atlantic City, the opposite is occurring:

Real-Estate-Market-Trends-June-2016-11

Home prices are down more than 12% from last year and foreclosure sales as a percentage of total sales is high (44.87%) and growing — not a good sign for the future.

Fortunately, the recently passed PILOT rescue bill by the New Jersey Legislature calling for the casinos to pay $120 million annually for 10 years should help stabilize the city’s finances and keep it from filing for bankruptcy.

We will keep an eye on home prices and hopefully have some positive news for Atlantic City in the months ahead.

About Home Value Forecast

Home Value Forecast (HVF) is brought to you by Pro Teck Valuation Services. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs.

HVF is built using numerous housing and economic data sources. The top 750 CBSAs as well as data down to the ZIP code level for approximately 18,000 ZIPs are available with a corporate subscription to the service.

Also, Pro Teck Valuation Services offers reporters the following:

  • National, regional or metro level housing data
  • Monthly Updates and HVF Insights articles
  • By-request data for your story — custom data, heat maps and charts are available
  • Expert commentary from Home Value Forecast Editorial Committee:
    • Tom O’Grady, Chief Executive Officer, Pro Teck Valuation Services
    • Michael Sklarz, PH.D., President, Collateral Analytics
    • Jeff Dickstein, Chief Compliance Officer, Pro Teck Valuation Services