Rising home prices show traction in housing recovery
Home values rise for first time in 5 years
NEW YORK (CNNMoney) -- Home prices hit a bottom and are finally bouncing back, according to an industry report released Tuesday. Nationwide, home values rose 0.2% year-over-year to a median $149,300 during the second quarter, the first annual increase since 2007, real estate listing site Zillow reported. Prices were up 2.1% from the first quarter. Even though June marked the fourth consecutive month of home value increases, overall home prices are still down almost 24% since April 2007, when Zillow began to track home values. "[I]t seems clear that the country has hit a bottom in home values," said Zillow's chief economist Stan Humphries. "The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own." Last winter, Zillow projected that the housing market turnaround would not arrive until the end of the year. Other home price indexes have also recorded gains lately, including the S&P/Case-Shiller home price index. In it latest release, it reported that home prices in 20 major markets rose 1.3% in April, the first monthly increase in seven months.
Zillow uses a different methodology in calculating home values than other home price indexes like Case-Shiller and the Federal Housing Finance Agency. Sales of foreclosed, bank-owned properties, for example, are not factored into Zillow's data. Zillow does include short sales, however, which are more difficult to distinguish from conventional sales. "Our index is geared to consumers, conventional sellers deciding whether they want to put their homes on the market," said Humphries. The indexes that include foreclosures in their market data show larger price declines. The peak-to-trough drop for the S&P/Case-Shiller home price index, for example, is about 34% compared with Zillow's 24%.
Housing: The worst is over ... really!
Fewer than one third of the 167 metro areas Zillow surveyed recorded annual increases in home values, but the size of the price gains in these areas more than offset the losses posted by the remaining two-thirds of the markets. In Phoenix, the biggest gainer, home values soared 12.1% year-over-year to a median of $136,200. Meanwhile, the biggest loss sustained by any of the 30 largest metro areas was in Chicago where median home values fell 5.8% to $158,600. Foreclosures remain one of the biggest risks to the housing market recovery, Humphries said. In the wake of the national foreclosure settlement which clarified how banks can legally pursue foreclosures, Humphries expects the pace of foreclosures to pick up. "That will translate to more homes on the market," he said. "But we think demand will rise to absorb that." Zillow expects the housing market to continue to slowly recover, with median home values projected to climb 1.1% -- relatively flat -- over the next 12 months. Most affordable cities for buying a home Beaten down markets like Phoenix, Las Vegas and many Florida cities, will likely record greater-than-average gains over the next 12 months, said Humphries. The results in those places, however, will be bumpy. Home price increases will cause some homeowners who have been patiently waiting for values to rebound to put their homes on the market. And those additional listings could cool prices for a while, resulting in a staircase effect with "price spikes followed by plateaus," said Humphries.
Housing Market Turns Corner; U.S. Home Values Post First Annual Increase In Nearly
Five Years
Stan Humphries, Contributor
I write about real estate and the housing economy
Zillow’s second quarter Real Estate Market Reports, released today, show home values increased 2.1% from the first to the second quarter of 2012 to $149,300 (Figure 1). On an annual basis, home values rose 0.2% from June 2011 levels (Figure 2), marking the first annual increase in U.S. home values since 2007. In addition to showing both quarterly and annual appreciation, national home values also rose for the fourth consecutive month, increasing 0.7%. Notably, home value appreciation in the second quarter was the highest since the fourth quarter of 2005.
The housing market’s recovery continues to show
tremendous variation market by market. Sixty-seven of the 156 markets
covered by the Zillow Home Value Forecast are expected to see increases in home values over the next year, with the largest increases expected in the Phoenix metro (9.9%) and the Miami metro (6.1%). We believe that ninety-six out of the 156 markets have already hit a bottom in home values, including Boston, Miami, and Phoenix.
In some of the hardest hit markets, the bottoming process has been
quite different than we had initially expected. Due to very low
inventory levels paired with greater consumer and investor appetite and
low mortgage rates, home values have appreciated faster than anticipated
in markets like Phoenix and Miami, creating a V-shaped recovery in home values.
Home Values
The Zillow Real Estate Market Reports cover 167 metropolitan areas (metros) of which 98 showed quarterly home value appreciation. Five metros remained flat, while 64 metros show home value losses. Nearly one-third of metros covered by the Real Estate Market Reports posted annual increases in home values. The largest annual increase was in Phoenix, where home values rose 12.1% from the second quarter of 2011 to the second quarter of 2012. Phoenix is benefiting from high demand for homes from investors looking to convert them into rentals, high demand from mainstream buyers pulled back into the market by historical affordability (almost 43% below the historical average) and constrained supply due to high negative equity (55.5% of Phoenix homeowners with a mortgage were in negative equity in 2012 Q1) and natural resistance of sellers to sell at market bottom.
Overall, national home values are back to January 2004 levels, having fallen 22.9% since their peak in May of 2007.
Rents
The June Zillow Rent Index (ZRI) is up 5.2% from year-ago levels, and 68% of the 293 metropolitan areas covered by ZRI in this report experienced year-over-year gains. The rental market remains strong even as home values start to once again appreciate in many markets. Markets that saw extremely strong year-over-year rent increases include Philadelphia (11.9%), Chicago (11%), Baltimore (11%), and San Francisco (9.5%). Continually rising rents will increase consumer demand for home purchases, especially in this low mortgage rate environment.
Home Values
The Zillow Real Estate Market Reports cover 167 metropolitan areas (metros) of which 98 showed quarterly home value appreciation. Five metros remained flat, while 64 metros show home value losses. Nearly one-third of metros covered by the Real Estate Market Reports posted annual increases in home values. The largest annual increase was in Phoenix, where home values rose 12.1% from the second quarter of 2011 to the second quarter of 2012. Phoenix is benefiting from high demand for homes from investors looking to convert them into rentals, high demand from mainstream buyers pulled back into the market by historical affordability (almost 43% below the historical average) and constrained supply due to high negative equity (55.5% of Phoenix homeowners with a mortgage were in negative equity in 2012 Q1) and natural resistance of sellers to sell at market bottom.
Overall, national home values are back to January 2004 levels, having fallen 22.9% since their peak in May of 2007.
Rents
The June Zillow Rent Index (ZRI) is up 5.2% from year-ago levels, and 68% of the 293 metropolitan areas covered by ZRI in this report experienced year-over-year gains. The rental market remains strong even as home values start to once again appreciate in many markets. Markets that saw extremely strong year-over-year rent increases include Philadelphia (11.9%), Chicago (11%), Baltimore (11%), and San Francisco (9.5%). Continually rising rents will increase consumer demand for home purchases, especially in this low mortgage rate environment.
Foreclosures
The rate of homes foreclosed continues to decline in June with 5.8 out of every 10,000 homes in the country being liquidated (Figure 4). This is the lowest foreclosure pace we’ve seen since December 2007 when 5.5 out of every 10,000 homes were being liquidated. Nationally, foreclosure re-sales also continued to slow, making up 15.6% of all sales in June, down from 16.4% in May (Figure X). The decreasing prevalence of foreclosures in the monthly transactional mix is due to both seasonality (more non-foreclosure sales in the spring and summer) combined with the much slower pace of foreclosure liquidations over the past year. This lower level of foreclosure re-sales is contributing to home value appreciation, as these are usually sold at a discount and influence surrounding non-distressed sales. With foreclosure starts again increasing now that the National Foreclosure Settlement has been approved by the courts, we do expect some increase in foreclosure liquidations in the back half of this year, although lenders are being more aggressive in pursuing foreclosures alternatives for homes in the pipeline.
Outlook
Nationally, we believe that housing has finally turned a corner, and our forecast calls for U.S. home values to increase by 1.1% over the next year. In general, we continue to believe that high levels of negative equity paired with higher than normal unemployment will keep foreclosure rates higher than normal for at least the next 2-3 years. In some markets, we believe this combination will temper near-term price appreciation and lead to a U-shaped recovery in home values.
In other markets, however, we believe the trajectory of home values will look more like a step-function characterized by cycles of price spikes and plateaus. In these markets, negative equity-induced supply constraints in combination with mainstream buyer demand and robust investor demand will lead to short-term price spikes (as we’re seeing now in Phoenix and Miami). These price spikes will free some homeowners from negative equity, allowing them to sell, thereby easing supply constraints and dampening prices until the cycle is repeated.
Downside risks to our outlook are that the pace of foreclosures increases more than expected, job growth becomes even more sluggish, or we have a political train wreck on the budgetary and tax issues we face at the end of this year. We, however, remain optimistic that low mortgage rates, high levels of affordability, rising rental prices, and slowly improving conditions in the overall economy will combine to keep the housing recovery on track, and we expect that both existing and new homes sales will continue to increase for the remainder of the year, being tempered only by low inventory levels (versus anemic demand).
See interactive data on Zillow’s Research page here.
The rate of homes foreclosed continues to decline in June with 5.8 out of every 10,000 homes in the country being liquidated (Figure 4). This is the lowest foreclosure pace we’ve seen since December 2007 when 5.5 out of every 10,000 homes were being liquidated. Nationally, foreclosure re-sales also continued to slow, making up 15.6% of all sales in June, down from 16.4% in May (Figure X). The decreasing prevalence of foreclosures in the monthly transactional mix is due to both seasonality (more non-foreclosure sales in the spring and summer) combined with the much slower pace of foreclosure liquidations over the past year. This lower level of foreclosure re-sales is contributing to home value appreciation, as these are usually sold at a discount and influence surrounding non-distressed sales. With foreclosure starts again increasing now that the National Foreclosure Settlement has been approved by the courts, we do expect some increase in foreclosure liquidations in the back half of this year, although lenders are being more aggressive in pursuing foreclosures alternatives for homes in the pipeline.
Outlook
Nationally, we believe that housing has finally turned a corner, and our forecast calls for U.S. home values to increase by 1.1% over the next year. In general, we continue to believe that high levels of negative equity paired with higher than normal unemployment will keep foreclosure rates higher than normal for at least the next 2-3 years. In some markets, we believe this combination will temper near-term price appreciation and lead to a U-shaped recovery in home values.
In other markets, however, we believe the trajectory of home values will look more like a step-function characterized by cycles of price spikes and plateaus. In these markets, negative equity-induced supply constraints in combination with mainstream buyer demand and robust investor demand will lead to short-term price spikes (as we’re seeing now in Phoenix and Miami). These price spikes will free some homeowners from negative equity, allowing them to sell, thereby easing supply constraints and dampening prices until the cycle is repeated.
Downside risks to our outlook are that the pace of foreclosures increases more than expected, job growth becomes even more sluggish, or we have a political train wreck on the budgetary and tax issues we face at the end of this year. We, however, remain optimistic that low mortgage rates, high levels of affordability, rising rental prices, and slowly improving conditions in the overall economy will combine to keep the housing recovery on track, and we expect that both existing and new homes sales will continue to increase for the remainder of the year, being tempered only by low inventory levels (versus anemic demand).
See interactive data on Zillow’s Research page here.
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