Pro Teck Valuation Services’ December Home Value Forecast (HVF) Update explores the relationship between home prices and market fundamentals such as employment predicting that many of the hardest hit markets still show more upside. In recent updates, Home Value Forecast reported on markets including Phoenix and Sacramento that ended up undervalued from the crash and as a result were showing some of the strongest price appreciation in the nation and making HVF’s Top 10 CBSA ranking. As the housing inventory has been gobbled up, pushing prices up, activity has slowed and these CBSA’s have dropped off HVF’s Top 10 rank. In this month’s update HVF highlights these markets as examples of how market fundamentals show there is still room for further price appreciation.
“Home Value Forecast has been pointing out for the past year that most of the fundamental factors for a recovery in home sales activity and prices are falling in place. However, the residential real estate market has always had a strong psychological component driven by consumer confidence,” said Tom O'Grady, chief executive officer of Pro Teck Valuation Services. “In this month’s release it is interesting to see how prices reflecting current consumer confidence and longer term market fundamentals like employment track one another, the latter always anchoring consumer perception from straying too far.”
According to the HVF contributing editors, swings in sentiment toward the real estate market result in the tendency for home prices to oscillate above and below what they think is a central value for each market.
“During periods of great exuberance, these swings can carry prices far above sustainable values as we saw during the most recent bubble period,” said O'Grady. “Similarly during times of extreme pessimism, these swings can move prices below intrinsic values as we have seen in the past several years. Such behaviors also may help explain why home sales and prices are not reacting in late 2012 the way history would suggest based on historically low interest rates.”
One of the primary drivers in Home Value Forecast’s home price forecast models is employment. December’s update delves into the strong correlations back to the early 1970s of annual percent changes of single family home price and total employment for the Sacramento metro. As HVF reported in August, Sacramento is particularly interesting because home prices overshot on the downside after the market peak in 2006.
“When home prices are rising, homebuyers assume that they will keep rising, and when prices are declining, buyers assume that they will continue declining,” O’Grady said. “Rising home prices lift not only consumer confidence, but business confidence as well. They also increase homeowner net worth and encourage those buyers who have been sitting on the fence to purchase. These new buyers lead to higher turnover rates, reinforcing the existing trend.”
This month’s Home Value Forecast update also includes a listing of the 10 best and 10 worst performing metros as ranked by our market condition ranking model. The rankings are run for the single family home markets in the top 200 CBSAs on a monthly basis to highlight the best and worst metros with regard to a number of leading real estate market indicators, including: sales and listing activity and prices, MRI, days on market, sold-to-list price ratio and foreclosure and REO activity.
“Three of the top ranked metros are located in Texas while another three are in Southern California. The former are markets which really did not exhibit bubble conditions during the nationwide run up and, thus, did not need to experience a meaningful housing price correction,” said Michael Sklarz, Principal of Collateral Analytics and contributing author to Home Value Forecast. “The California markets fall into the category of markets which did overshoot on the downside and attracting home buyers looking to take advantage of very favorable prices.”
December’s top CBSAs include:
►Santa Ana-Anaheim-Irvine, Calif.
►Dallas-Plano-Irving, Texas
►Bethesda-Rockville-Frederick, Md.
►Austin-Round Rock-San Marcos, Texas
►Seattle-Bellevue-Everett, Wash.
►Oxnard-Thousand Oaks-Ventura, Calif.
►Salt Lake City, Utah
►Minneapolis-St. Paul-Bloomington, Minn.-Wis.
►Los Angeles-Long Beach-Glendale, Calif.
►Houston-Sugar Land-Baytown, Texas
“The bottom-ranked metros also represent an interesting mix with four being in the greater New York-New Jersey-Connecticut area. There also are four in the Southeast with new additions to the ranking including the metros of Little Rock and Knoxville. Most of the bottom-ranked have double-digit months of remaining housing inventory,” said Sklarz.
The bottom CBSAs for December were:
►Little Rock-North Little Rock-Conway, Ark.
►Virginia-Norfolk-Newport News, Va.-N.C.
►Newark-Union, N.J.-Pa.
►Cleveland-Elyria-Mentor, Ohio
►Edison, N.J.
►Knoxville, Tenn.
►New York-White Plains-Wayne, N.Y.-N.J.
►New Haven-Milford, Conn.
►New Orleans-Metairie-Kenner, La.
►Greenville-Mauldin-Easley, S.C.
