Clear Capital: Home price growth anemic through 2015
West will see prices collapse, Midwest may be price lifeline
As opportunity for discounted deals dry up, so too does a portion of the recovery driving demand, reports Clear Capital in their home data index market report through July 2014.
According to Clear Capital, national yearly growth fell from 9% last month to 8.4% in July. Just as national home price growth continued to contract in July, so too followed distressed sales.
“The force of moderation in July trends raises questions around the market's ability to sustain gains through 2015,” said Alex Villacorta, vice president of research and analytics at Clear Capital. “Relatively speaking, a national yearly growth rate of 8.4% is not alarming, but it’s the path by which we got there that is of concern. Today’s annual rate is over three percentage points lower than it was at the start of the year, and recall that the summer is supposed to be the highlight of the housing cycle. At the metro level, we are taking notice of stronger drops, like in Riverside and Phoenix.”
As a percent of all sales, distressed sales fell to 18%, a stark reduction since its peak of 40.8% in March of 2011.
The major shift in home sale type, from distressed to fair market, will continue to impact future growth potential for markets overall, and begs the question:
Will home price gains continue to fall past the historical range of 3%-5% as discounted deals dry up?
Or, will they stabilize to sustain moderate long-term growth?
Clear Capital’s forecast through 2015 shows national home prices will rise just 1.5%, indicating prices may not have the strength to stabilize within this historical range of growth.
While the West continues to dominate regional gains with eight of the top 15 major metro markets, the MSAs within the region are not immune to the strong moderating patterns unfolding across the country. Each market has its own unique demand drivers, yet similarities exist.
Some Western markets like Phoenix and Riverside are seeing a strong pullback from their investor-fueled first in, first out (FIFO) recovery paths while others, like San Jose and Seattle, are experiencing moderation alongside strong local economic foundations.
Even though these outliers continue to see strong local economies drive demand, it may not be enough in 2015. The West is projected to see price declines of 0.8% through 2015, while the historically volatile Midwest could be home to the recovery’s next group of heroes, with a leading forecast growth of 3.4%.
“Forecasts through 2015 indicate that there are several markets that are not going to be immune to declines, and with a national forecast of just 1.5% price growth over the next 18 months, there will not be much of a cushion for any sort of hiccup in the broader economy,” Villacorta said. “We expect growth rates to vary more significantly across markets over the next year as local drivers such as confidence and job opportunities ebb and flow. This will be a very unique time for the market as the level of investor activity gives way to the traditional home buying segment. Whether this segment is willing and able to make a commitment on a home purchase remains to be seen, but we know from history that if it were to happen this year, it would have happened by now.
“With many markets moving past the driving forces and fallout of the bubble, we’ll see increasing numbers of metros across the country take their own path, with future declines and unsettled price dynamics all part of the new normal landscape,” Villacorta said.