Prices should stabilize this year, the best deals are in the mid-tier and it’s a weak start for homebuying, according to the Clear Capital Home Data Index market report for May.
Clear Capital’s report is among the most granular home data, and its analysis comes out earlier than nearly any other index provider in housing.
"Very interesting dynamics are at play as we head into spring. Though our April data suggests the spring buying season is off to a slow start, we aren't concerned about the sustainability of the recovery," said Alex Villacorta, vice president of research and analytics at Clear Capital. "To be clear, there are lots of adjustments taking place in housing markets across the country.”
He said that everything from lender regulation, consumer confidence, investors tapering purchases, local economics, and rising home prices have forced participants to continually adjust to a market that has been anything but stable.
"Generally speaking, we see price growth stabilizing throughout 2014, which should help boost the confidence and purchase activity from buyers on the fence. Looking at home price trends by tier, it's apparent the impact of investor activity has been concentrated in the low price tier segment. Conversely, the segment of the market that represents the middle 50% of all transactions is still more than 30% off peak values.
He said that this suggests that there is good price growth potential and could motivate enough buyers to sustain an overall rate of home price growth consistent with historical norms.
“The days of double digit price gains are behind us, and the market will continue to calibrate to the new reality of annual growth rates between 3% and 5%. A strong spring buying season might be a casualty of the major adjustments underway, but it’s no reason to ring the alarm bells quite yet," Villacorta said.
The three takeaways?
1) Best deals move from low-tier to mid-tier
Following more than two years of recovery, the mid-tier price sector now offers home buyers the best deals, relative to peak values. After 32.3% growth from the trough in 2011, low-tier deals appear to be played out compared to mid-tier deals (homes selling between $95,000 and $310,000 nationally), with prices still 30.6% off peak values. The strong rebound in the low-tier price sector left homes, on average, just 21.5% below peak values. Top tier homes are just 18.2% off peak values.
2) Weak start can mean stability
Early signs show the spring buying season is off to a tepid start in April. We observe quarterly rates of growth for the nation and three of the four regions virtually unchanged over last month. Stability in this new moderating pattern, back toward historical norms of 3%-5% annually, will help restore first time and owner occupant buyers’ confidence in the market.
3) Real estate is local again.
Yes, moderating price trends are converging toward one another (with just a one percentage point spread in quarterly rates of growth for the top performing 15 MSAs). But underlying drivers, like distressed sale saturation and local job markets, remain drastically different. Between Chicago’s 39.7% and San Jose’s 7.9%, the spread in distressed saturation within the top 15 performing MSAs is nearly 32 percentage points.
Chicago will likely see more demand from investors looking for great deals on distressed sales (with median prices around $160,000), while higher priced markets like San Jose (with median prices around $650,000), supported by a relatively healthy local economy, may see stronger appetites from owner occupied buyers.