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Home Value Forecast 12.22.2011
Supply, Demand and Home Prices

It has become apparent to many observers that home prices in much of the country have bottomed out. In fact, most markets hit their low in early 2009. At the same time there is almost universal consensus that it will be many years before there is any significant increase in prices. While we agree that home prices will only exhibit moderate increases over the next several years, we believe that potential is building for more significant increases after that.

Housing markets are driven by basic supply and demand factors, just like any other market. In the case of housing, the most basic measures are the number of new housing units (supply) and the number of new households (demand). While the recent recession has slowed the rate of new household formation, its negative impact on new home construction has been more severe, causing housing starts to be at the lowest levels in fifty years. This is setting up a classic imbalance between supply and demand – potentially resulting in stronger home price pressures than currently being expected when the housing market recovers.

To see the interaction between home prices, supply and demand we created an indicator by overlaying the annual number of new single family/condominium housing units on the number of new households. The graph below shows this for the Riverside CBSA.

Notice how prices rose when the number of new households exceeded the number of new housing units (late 1980s and between 1997 and 2003) and declined or stabilized when new housing units exceeded new households. This market shifted to excess supply in 2004, a precursor to the peaking then significant decline in home prices thereafter. Excess demand that started in 2008 is now starting to show in an uptick in median home sale price.

CBSA Winners and Losers

Each month we look at CBSAs across the United States and rank the best and worst metros with regard to a number of leading real estate market based indicators. Information on how CBSA winners and losers can be found be contacting us or reading on our CBSA page.

The top ranked CBSAs exhibit a fairly consistent theme. In nearly all cases prices have declined significantly from their peak and have been moving sideways or slightly downwards for more than two years. While the first thought might be to assume that these are very depressed markets with little prospect for improvement, positive trends in various indicators suggest that buyers are taking advantage of the depressed prices and excellent values.

Conversely, in a number of the lowest ranked CBSAs prices have held up quite well since the peak in the market – thus are seeing less dramatic swings in values or a slight negative draw as the market strives for equilibrium.

The top 10 CBSAs for the current month:

  1. Cape Coral–Fort Myers, FL
  2. Tampa-St. Petersburg, FL
  3. Dayton, OH
  4. North Port-Bradenton-Sarasota, FL
  5. Orlando–Kissimmee–Sanford, FL
  6. Port St. Lucie, FL
  7. Punta Gorda, FL
  8. Syracuse, NY
  9. Tallahassee, FL
  10. Wilmington, NC

The bottom 10 CBSAs:

  1. Spokane, WA
  2. Huntsville, AL
  3. Toledo, OH
  4. Tacoma, WA
  5. Reno-Sparks, NV
  6. Oxnard-Thousand Oaks-Ventura, CA
  7. Las Vegas-Paradise, NV
  8. Bremerton-Silverdale, WA
  9. Beaumont-Port Arthur, TX
  10. Virginia Beach-Norfolk-Newport News, VA/NC

Outliers

All real estate is local, and what’s happening at the ZIP level is not always consistent with CBSA trends. In this regard, our analytic tool enables users to track real estate markets around the U.S. by county, city, ZIP code, or neighborhood as well as by property type, transaction type, price range and property characteristics. For this month we look at North Port-Bradenton-Sarasota, FL.

The graph below shows the price per living area trends of Sarasota and one of its ZIP codes.

As seen, this ZIP code outperformed the overall Sarasota price in both the upside and downside of the cycle. In particular, between 2000 and the market peak in 2006 the overall Sarasota price increased 124.7% before declining 45.0% to its current value. In contrast, the home price of ZIP 34236 increased 180.5% between 2000 and its peak in 2007 before declining 39.3% to its current value. We often see this phenomenon for higher priced markets where housing is more discretionary. Stated another way, at the lowest price levels there is a minimum level of housing that will meet a family’s space needs. As you move up to largest homes, much of the demand for space is more elastic, making higher priced markets move more easily up when the economy is doing well and vice versa.

The next graph shows our current home price forecast for the North Port-Bradenton-Sarasota, FL CBSA along with several of its ZIP codes.

ZIP 34222 is projected to underperform the overall CBSA while 34289 is projected to outperform.  One reason for the different forecasts is the level of distressed sales.  ZIP 34289 in North Port, FL has seen REO sales running at ~15% of total sales while ZIP 34222 in Ellenton, FL has seen REO sales at more than twice that level.   The result is that prices in the latter ZIP code will be slower to recover.

About Home Value Forecast

Home Value Forecast was created from a strategic partnership between Pro Teck Valuation Services and Collateral Analytics. HVF provides insight into the current and future state of the U.S. housing market.

Each month Home Value Forecast delivers a monthly briefing along with “Lessons from the Data,” an in-depth article based on trends unearthed in the data.

HVF is built using numerous data sources including public records, local market MLS and general economic data.  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.  A demonstration is available upon request.  Please visit the Contact Us page to request a demonstration.

To see how Pro Teck and Collateral Analytics can help your company with its valuation needs, please call 800.886.4949 or email sales@protk.com.