Clear Capital released its monthly Home Data Index (HDI) Market Report with news of a year-over-year national price decrease in 2011 of 2.1 percent and forecast of a slight 0.2 percent gain in 2012.
Report highlights include:
• 2011’s decrease of 2.1 percent year-over-year was bolstered by a stabilizing of prices in the latter half of the year and decreasing REO saturation.
• In 2012, U.S. home prices are forecasted to show continued stabilization with a slight gain of 0.2 percent across all markets, remaining near levels not seen since 2001.
• Importance of micro-market analysis is reiterated as the 2012 forecast is for a flat U.S. market, but only 40 percent of individual markets (20 of 50) are projected to be stable.
“Overall, 2011 was a relatively quiet year for U.S. home prices compared to the last five years,” said Alex Villacorta, director of research and analytics at Clear Capital. “With national prices down a little more than two percent for the year and sitting at their lowest point since 2001, our projections show that the current balance the market has found will continue through 2012.
“However, individual markets reacting to their local economic drivers exhibit a wide range of performance levels,” Villacorta continued. “Although the national numbers suggest markets are flat, when looking at individual metro markets it turns out only 24 percent of them showed signs of stabilization in 2011, while the others are still moving more dramatically higher or lower. What’s most interesting is that the lower segments of appreciating markets are driving much of the current price growth. In places like Florida, which have historically been hard hit, we are now seeing considerable activity in lower-end properties as demand continues to heat up.”
2011: Quarter-over-quarter numbers reflect seasonality
U.S. prices declined 0.4 percent in December on a quarter-over-quarter basis, showing the markets giving back some of the gains of the summer buying season. This is the first cooling off after six monthly reports showing minimal quarterly gains. In fact, the most recent six months of the year (June – December) saw national home prices flat at -0.1 percent.
While these national quarterly numbers for December fell slightly, half of the major markets covered saw quarterly gains. Dayton, Ohio, checked in at the top of highest quarterly performers with a gain of 5 percent. On the downside, Atlanta showed consistent weakness as December’s lowest performing major market with a loss of 8.4 percent quarter over quarter.
In addition to the relatively flat home price performance, national REO saturation rates at the end of 2011 reached a new yearly low at 24.8 percent. REO saturation was volatile early in 2011 and showed consistent declines and stability toward the latter half of the year.
2011: U.S. numbers stable over the year
The 2.1 percent price decline in 2011 marked the smallest year-end change in either direction since the market gained 1.7 percent in 2006. The majority of the downturn was early in the year through May, with upticks hitting during the summer buying season and then remaining stable through the fall and early winter.
Regional trends revealed a bit more price variability. The Northeast’s meager 0.1 percent yearly gain led the nation, comparing favorably to the 1.3 percent, 3 percent and 4.4 percent price declines turned in by the South, Midwest and West, respectively.
While the changes in prices across the U.S. were mild for 2011, there were notable extremes at the positive and negative sides of the market. Four metros posted price declines greater than 10 percent, with Atlanta leading the way down with a -18.3 percent price change, followed by Seattle at -15.1 percent. Birmingham, Ala., and Detroit also rode the markets down with 11.1 percent and 10.8 percent price drops, respectively. Each of the markets with double digit declines saw an increase in the percentage of sales that were REOs through the year.
On the positive side, Dayton enjoyed 11.5 percent annual price growth in 2011. The next two strongest performers came from Florida, with Orlando and Miami basking in 6.7 percent and 5.6 percent price gains, respectively. Just as increasing REO saturation affected the worst performers, decreasing REO saturation for these three markets in 2011 (Dayton down 12.3 percent, Orlando down 21 percent and Miami down 9.9 percent) appeared to buoy their home prices for the year.
Looking to 2012: The end of five years of declines?
• U.S. price gains forecasted at 0.2 percent for 2012.
• Various metros continue to be volatile, some double digit gains and losses are expected.
• Florida markets predicted to lead recovery as all four markets expect solid increases.
On the national level, 2012 is expected to play out much like the last half of 2011, with a very subtle price change. A minimal decline in the beginning of the year is expected to turn into a meager gain by year’s end. At a more granular level, half of the 50 major metro markets are expected to post gains for the year, and individual metros will experience the full gamut of price movement, from double-digit growth to double-digit drops.
Double digit volatility can be seen with the two strongest markets, including Orlando, Fla., with a healthy price increase of 11.7 percent, and Bakersfield, Calif., close behind with a projected 11.1 percent increase. The deepest drops come from Atlanta with an expected drop of 14.4 percent, and Los Angeles with a predicted drop of 10.3 percent.
Following Orlando’s lead, other Florida markets are expected to extend their impressive 2011 performances into 2012. Miami and Tampa are projected to be among the five highest performing metros with 8.8 percent and 7.4 percent growth, respectively, and Jacksonville is forecasted to gain 4.3 percent, placing it at a respectable eighth among the top metro markets. The exceptional growth in these markets can be a result of several factors, including being hit especially hard in the downturn. While fighting back, they remain significantly off their highs of 2006.
Other factors in play in these markets include large increases in the values of their lower priced homes (near double-digits for all markets) when compared to higher priced segments of the market, and a high percentage of all cash transactions (51.8 percent) when compared to other metros. This indicates a high degree of investor activity as they look for bargains in the region, driving up demand.
2012: The forecast in perspective
Although the range of movement for U.S. prices stabilized through 2011, prices have settled at the lowest level since early 2001. The forecast for 2012 shows home prices starting with a dip in the first quarter, improving in the spring and summer buying season, and continuing to climb to 0.2 percent overall growth for 2012.
For 2012: Buyer beware
Although “stable” and “flat” have been used to describe the performance of 2011 and forecast for 2012, the performance of individual metro markets has not been flat at all. In fact, metros across the nation have experienced an interesting balance of increases and losses, that when averaged, create an impression that metro markets across the U.S. are stable.
Individual markets reacting to their local economic conditions continued to exhibit a wide range of performance levels in 2011, with only 12 of the top 50 metro markets (24 percent), returning year-over-year price movement that can be considered stable — price swings of less than 2.5 percentage points. This will continue into 2012, with only 40 percent being considered stable.
Clear Capital indicated the forecasted movement of 50 metros within its 2012 forecast. It includes the forecasted 0.2 percent increase and the metro markets that are within +/- 2.5 percent of zero change. Twenty of 50 markets are shown to be stable, with the rest being above 2.5 percent increases or below 2.5 percent declines.
This large expected fluctuation in home prices among the individual markets speaks to the importance of regularly tracking each market’s performance as numerous dynamics, including varying REO saturation and unemployment levels, are still very much in play.
Success in 2012's real estate market will be driven by picking markets carefully and fully understanding local drivers.