Price Rebounds Not Enough for Recovery to Take Hold

A closer look at the quarterly changes in asking home prices reveals that despite a rise in August the downward trend continues, according to Trulia.

In August asking home prices increased 11% year-over-year but only 1.2% month-over-month and 3.1% quarter-over-quarter. Asking home price increases already are down from 3.2% in July and 4% in April.

The “downward slope” most likely will continue “as mortgage rates rise, inventory expands and investor interest declines,” said Trulia’s chief economist Jed Kolko.

Rate increases that started in early May have increased the cost of a mortgage by more than 10%, “but rising rates aren’t the whole story behind the price slowdown,” he said, along with expanding inventory and declining investor interest.

The good news is that at the same time mortgage credit has finally started to expand, and the economy continues to strengthen, he said, “both of which boost housing demand and offset some of the dampening effects of rising rates.”

He notes, however, that a full housing recovery requires rebounds in both prices and new construction and currently construction activity is not back to normal level yet as construction permits in 2013 are around just 60%-70% the average levels seen between 1990 and 2012.

The August 2013 Trulia Price Monitor Summary of the 100 largest metros with asking-price increases excluding foreclosures, also shows “despite recent price gains,” construction lags behind even in places that have seen more significant year-over-year price rebounds of over 20% like Las Vegas, Sacramento and Detroit.

At the same time apartment rents are increasing faster than single-family home rents at 3.5% annually, up 3.9% on apartment units and only 1.6% on single-family homes.

Among the 25 largest U.S. rental markets, Seattle, Portland and Miami were the top three markets where rents increased the most, while in Philadelphia, Washington and Sacramento they marked a slight decline.

Investors and builders have bet on different local markets, said Kolko. While investors bought in the boom-and-bust metros such as Las Vegas, “builders are betting on markets that avoided the worst of the crash, like Boston, much of Texas, and the expensive California coast, where job growth is strong and few homes are vacant.”

Apparently investors and builders continue to bet on different local markets.