Pro Teck Valuation Services' April Home Value Forecast (HVF) Update examines the factors fueling the turnaround in many U.S. real estate markets and explores common threads that drive real estate cycles in individual metro areas using the Collateral Analytics (CA) Leading Real Estate Index (LREI). In April's update, the authors explore the common threads that forecast real estate cycles in individual metro areas, such as Los Angeles and Atlanta, using the CA Leading Real Estate Index to demonstrate. The CA LREI is based on a number of factors including housing affordability, employment growth, home sales activity, new sales permits and other indicators. The index has a range between 0 and 100 and a "Buy Signal" is given when the index moves above 50, while a "Sell Signal" is given when the index moves below 50. The signals were accurate over the past 30 years with "Sell Signals" in late 1990, and early 2007 and "Buy Signals" in late 1983, late 1996, and most recently in the third quarter of 2012.
"The housing market in many areas has rebounded more quickly due to a shortage of new homes being built and the decline in home prices for existing homes on the supply side," said Tom O'Grady, CEO of Pro Teck Valuation Services. "One of the other catalysts has been large investment funds, which are continuing to purchase REO and other distressed single family homes to rent out. These funds have also been renovating homes, which has helped to improve the overall conditions of the surrounding neighborhoods and provided a positive injection of capital."
This month's Home Value Forecast update also includes a listing of the 10 best and 10 worst performing metros as ranked by its 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/listing activity and prices, months of remaining inventory (MRI), days on market (DOM), sold-to-list price ratio and foreclosure and REO activity.
"One of the primary conclusions from the CA LREI's Buy and Sell Signals is that these signals typically occur years apart and suggest that the current up-cycle is in its very early stages," said O'Grady.
"Five of this month's top markets are in California, and include not only the Los Angeles and Orange County metros, but also the Sacramento and Stockton metros, which previously had been very distressed after experiencing severe price declines since their respective market peaks in 2005 and 2006," said Michael Sklarz, Principal of Collateral Analytics and contributing author to Home Value Forecast. "Texas also is well represented this month by the Dallas and Austin metros. A new entrant to the top 10 is Warren-Troy-Farmington Hills, Mich. This is a market that was very hard hit in the recent recession but appears to be experiencing improving overall economic conditions, including affordability and compelling rental yields for investors."