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Market Trends Across the U.S. Indicate a Recovering Real Estate Market (Not a Bubble)

Supply and demand dynamics are the cornerstone of the U.S. real estate market.  Supply and demand shape our markets and are influenced by many factors including employment, mortgage rates, housing costs and consumer confidence.

Over the past five years, we’ve felt the effects of other influences as well.  The lingering aftershocks of the financial crisis, historic foreclosure numbers, regulatory expansion, tight credit and paralysis in the secondary market have all left their mark.

The good news is that the U.S. real estate market is in the midst of a rebound.  While every market is different, and every neighborhood is different, we at Home Value Forecast see positive trends now being the norm instead of the exception.  California has been leading the way in the recovery, followed by non-judicial states, and finally judicial states like Florida are seeing positive trends (Click here to read an earlier post outlining the differing impact of judicial versus non-judicial foreclosures).

In this month’s post, we are going to look at the individual single family housing trends used in the Home Value Forecast market rankings as proof that the recovery is widespread.  We will also look at affordability and home prices now compared to the peak to show that we are not in a bubble and there is still plenty of head room for further price appreciation, even in the hottest markets.

Market Trends

For each trend highlighted we have listed the 20 top markets.  As you will see, there is quite a concentration in CA, something also seen in this month’s Home Value Forecast Top 10 CBSA ranking.  In some charts we have also added one-year price appreciation numbers to compare against.  Price is a trailing indicator impacted by all factors, which accounts for the variation.

Active Listings

Active listings in a metro have a dramatic effect on real estate market dynamics — fewer homes on the market can result in a shortage of housing supply to meet the market demand, creating competition that results in home price appreciation.  Below are the top metros in terms of the largest decrease in supply from last year.

top active listings percent change

Months of Remaining Inventory

A decrease in listings is often associated with low Months of Remaining Inventory (MRI). MRI is the number of homes that are for sale in a particular month divided by the number that usually sell within an average month (for the area).  In a stable market there is usually around 6 months of inventory (will take 6 months at current sales rates to sell off the available inventory).

As you can see, our top 20 metros for lowest MRI are all below 4 months, signifying a very tight real estate market.  With less inventory buyers need to be quick with offers and willing to pay top dollar. Not surprising that many of the same CBSAs appear on this list and we see the same trend of home price appreciation.

lowest months of remaining inventory june 2014

Sale Price/List Price Ratio

Related to the prior two metrics of decreasing listings and decreasing inventory is a high sale to list ratio.  When inventory is tight, buyers deliver maximum offers to close a deal.  As you can see below, all of our top 20 metros are at or above 100 percent, meaning buyers on average are paying list price or above.

Top sale price list price ratio

Price Appreciation

Price appreciation is the barometer of a heated market.  Some say we are headed toward another bubble, and many of the numbers above would make one draw the same conclusion, but is it true?

The top 5 CBSAs this month in terms of price appreciation:

top 5 sold price percent change from 2013

Now let’s look at the same five using Collateral Analytics Forecast Model:

top 5 sold price percent change from 2013 forecast

All of these markets except for Detroit were overheated going into 2006, when the bubble peaked.  The bigger the run up in price the bigger the crash with these markets bottoming out from 2009 to 2011.  They have certainly gained steam over the past two years, but are still far short of their 2006 peaks.  Naples and Santa Maria CBSA’s have shown the greatest appreciation over the past year but are still 25.4 percent and 23.4 percent short of their 2006 peaks respectively.  The forecast for these markets is positive over the next 3-5 years but will not sustain the recent ‘recovery’ pace as post bubble market fundamentals of affordability and price take over.  The big difference this time around is that mortgage credit is much tighter due to increased regulation and the zero down, pick-a-pay, stated income, type of exotic mortgages that created the last bubble are no longer an option.

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 to 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

>June 2014 top 10 performing housing markets

Not surprisingly, the majority of the overall top ten markets are in California again.  As indicated by research above, California is leading MRI, active listings, active price change percent, and sales to list price ratios.  These hot markets are leading to very competitive prices for sellers.

Bottom 10

June 2014 bottom 10 performing housing markets

Although many of the indicators in the bottom ten are trending positive, we are still seeing more than six months of inventory in all but one market and high foreclosure ratios.  Until those indicators improve, those areas are likely to see weaker housing conditions for the coming months.

Outliers

The Jacksonville, NC CBSA shows in our bottom ten this month, with high inventory and foreclosure ratios slowing the recovery.  On a whole, the CBSA has lost more than 15 percent in home value in the last two years.  Looking deeper, however, we see specific ZIP codes bucking the trend.

ZIP code 28584, Swansboro, NC, is part of the Jacksonville CBSA but is experiencing a different real estate market.  Swansboro has grown by more than 40 percent since 2000 and has more than eleven miles of coastline that attracts buyers.  Swansboro, during the same time the CBSA has experiences a 15 percent drop in home values has had 3.3 percent appreciation.