Index: Home Prices Rise 5%, but REO Still High
Truckee, CA-As the debate over the real meaning of recent price change data continues, a monthly index shows further overall price improvements.
According to Clear Capital here, a provider of real estate asset data, valuation, investment and risk assessment, the national quarterly price gain grew to 5% this month, "reflecting a wide-reaching improvement in price declines across all four U.S. regions."
The 5% national quarter-over-quarter gains featured all regions with the Midwest leading at 11.2%, while the South, Northeast and West regions posted gains of 5.3%, 2.4% and 1.1%, respectively.
"While we see yet more improvements in the quarterly price trends, REO activity remains very high," said Kevin Marshall president of Clear Capital, whose monthly index was the first to report U.S. home price gains last month.
"The summer season, combined with increased opportunity for investors and homebuyers, helped the most severely impacted markets ease the home price slides experienced this past winter."
The monthly Home Data Index Market Report based on data compiled through July 25 also shows that certain inherent risks, such as high levels of real estate-owned properties continue to generate market instability.
Clear Capital's metropolitan statistical area drilldown indicates "continued high real estate-owned saturation levels add to market volatility."
The executive cautioned that while Clear Capital's news "of an upward tick in home prices last month," followed by similar findings reported by other data providers, has started a national debate on whether this is the bottom, or just a seasonal bump - answers should not come easy.
"Adjusting for seasonality creates another layer of estimation that can be erratic year-over-year," Mr. Marshall says. "People do buy and sell more homes in the summer, and as a result prices do increase during this season.
"National-level loan servicers, local buyers and investors need to know what is going on in specific markets right now as they manage the remarketing of millions of defaulted properties."
The Clear Capital HDI Market Report gives investors and lenders a near real-time look at pricing conditions within local markets. And as usual, local markets tell drastically different stories.
For example, Cleveland once again posted strong results, while parts of Phoenix showed signs of growth.
Micro-market analysis shows the Phoenix MSA's longtime downward spiral demonstrates signs of improvement, the company said.
Mr. Marshall explains that as with any housing recovery, small pockets of neighborhoods and specific price tiers are leading the way and posting gains.
"As individual markets turn, it's very easy to underprice REO listings when you don't have the most recent, geographically relevant data. Everyone working to get us out of this downturn needs to be very aware of this," he warns.
"National price trends are interesting and this is most likely not a pricing bottom. However, local, timely price trends are perhaps more critical for everyone in the industry to discuss."
Data show the Midwest softened its yearly loss to 15.7%, while the West "capitalized on improving demand to turn its still heavily REO-saturated markets into positive quarterly territory." Meanwhile the South moved to the top posting a yearly loss of only 12.1%.
In addition, the yearly price change spread between regions continues to shrink, with a nine-point range between the lowest performing West region down 21.1% and the highest performing South region down 12.1%, with the West and Midwest still suffering from very high REO saturation rates.
At the micro-market level "there was some improvement in the REO saturation rates," as many of the top-performing markets continue to stay at rates close to, or higher than, the national average of 33.1%.
"This reflects the continued impact of foreclosures, and indicates that the large quarterly gains are driven by positive price changes in REO properties." As a result, the company said, while all of the lowest performing markets still show substantial negative price returns over the past year, they are showing signs of improvement with 12 of the 15 markets listed posting quarterly results no greater than a 3% decline.
For example, the focus on Phoenix shows signs of improvement with a price change down 1.9% for the quarter. The Phoenix area saw the largest yearly declines among the major markets with losses reaching in excess of 40% driven in part by speculative investments and second-home demand leading up to the end of the market's price peak in mid-2006.