Extreme Cold is Slowing the National Housing Market
No matter where you live in the United States chances are you aren’t immune to the freezing cold temperatures that have been sweeping the nation this winter. Even the warmest climates are reporting record low temperatures.
Well it seems this is not the kind of weather that leaves consumers excited about going out and shopping for a new home: CoreLogic’s January Market Pulse and December Housing Price Index reports tell the story. Even though national prices are up nearly 12% from December 2012, those same numbers are actually down 0.1% from the month before. Meaning that housing prices continue to remain frozen throughout this winter season.
What’s more important to note is the prediction that prices in January 2014 are going to represent a 0.8% decline from December 2013. Based on their month-over-month decline in December and minimal increases since September, the result is home prices are actually dipping below the prices reached in 2013.
Sacramento-Roseville Housing Market Shows Room for Growth
The trend does show that the rate of housing price increase is slowing, but the most telling number is that nationally the housing price index is still 18% below its peak reached in April 2006.
And even though California and the Sacramento-Roseville metro area have seen year-over-year increases of around 20%, their respective housing price indices still remain further from their peaks than the national market. According to CoreLogic’s January MarketPulse Report, California’s HPI remains 21.3% below its peak and Sacramento-Roseville real estate has even more room for growth as it remains 33% below its peak.
To put that number in perspective, home prices in the Sacramento-Roseville metro area would need to increase by 50% to equal its peak price reached during the housing bubble in 2005.
But who knows how much longer the cold will keep the prices of California homes down.
If you’re “In the Market”, it’s time to get Pre-Qualified
If you’re on the fence about buying a home in California in 2014 you should seriously consider getting in touch with a lender to determine what you can afford. The extreme cold is getting the year off to a slow start; use that to your advantage and get in before real estate prices in Roseville and California jump up again. Looking at the national monthly housing price increases in 2013 you can see how rapidly prices begin to increase in the spring.
You might also be thinking, “I’ll just wait till next winter when prices will be lower.” That simply won’t be the case. Remember the report says that housing prices in December were also up 11.8% from December 2012. Those increases being even higher in California and the Sacramento-Roseville real estate markets. The spring heat will be here before you know it, so don’t miss out!
The latest CoreLogic Home Price Index Report continues to show good news in the housing market. It also shows why the winter months could be the best time to buy all year.
Three facts to focus on:
Housing Price Index only increased 0.2% from September to October and 0.1% from October to November. This is a rather low increase although not out of the ordinary for this time of year. It means that prices did not go up very much during those months.
November’s 11.8% HPI increase represents the 21st consecutive month of year-over-year increases in the Housing Price Index. This means that prices have been climbing steadily for almost two years now.
Home prices remain 17.3% below the April 2006 peak. This means prices will likely continue to increase though those increases may begin to slow as we approach the 2006 peak price.
Taken together, these facts show that the remaining winter months of 2014 are a great time to purchase a new home in Placer & Nevada Counties, Calfiornia. In the long-term prices show no sign of decline but for the remaining winter months that rate of increase will remain low. Get in now before springtime demand brings prices up and watch your home appreciate in value for 2014.
If we look at CoreLogic’s Historical Data it shows that the national month-to-month increases in housing prices were 0.7% for January 2013, and all the way up to 1.5% in February 2013. So this winter lull in price increases won’t be lasting long.
According to S&P and CoreLogic Housing Price Index numbers, home prices continue to show strong growth over the past year with record year-over-year increases in many cities. Some cities are seeing increases as high as 20% versus the same month last year. These numbers are likely to remind some of the “pre-bubble days” when increases such as these were seen for several years in a row. However, you have to look a little closer at the data to see what’s really driving these numbers.
Why Did the Crash Hit Some Cities Harder than Others?
The answer to that question has to do with a number of economic factors, though there are similarities amongst the cities that saw the biggest losses in the crash. The cities that were hit hardest by the market downturn are also the cities showing some of the best growth in value according to the S&P/Case-Shiller Housing Price Indices.
Let’s take a look at three cities that posted large increases in May 2013 versus May 2012. Phoenix saw a 20% increase, Vegas 23%, Miami 14%, and San Francisco had an impressive 24% gain. If we graph these cities over the last decade, it’s easy to see how high prices rose and how far they fell.
SOURCE: S&P/Case-Schiller Housing Price Index
When compared to the National average you can see that all three cities showed increases far greater than the National trend. What we see is that homes in areas that experienced rapid growth were the ones hardest hit by the market downturn. Cities like Miami, Phoenix, and Las Vegas all saw tremendous growth in the last decade and were overdeveloped in many cases. When developers in these cities saw the rate at which home prices were increasing they were quick (and careless) in taking advantage of the abundance of inexpensive land.
SOURCE: S&P/Case-Schiller Housing Price Index
Homes in larger more established cities like Charlotte, Denver, and Cleveland (see above graph) saw significantly less of a reduction in home values from their peak. These cities often have less physical room for growth with little economic justification for increasing prices and are less likely to suffer from overdevelopment. This means that homes in those cities were more accurately priced than those in cities allowing developers to build recklessly. As a result, they saw less of a reduction of value when the market crashed. Even New York saw a relatively low drop during the crash. These cities are also the ones showing the smallest growth in the report, with New York and Cleveland up 3% over last year, and Denver and Charlotte up 9% and 7%, respectively. Even the slowest markets are seeing increases. CoreLogic reports year-over-year increases in 296 of 384 metropolitan areas with the 20 largest areas all showing increases.
What does this mean for the homebuyer?
The areas strongly impacted by the crash represent a great value. Homes in those areas are likely to be very reasonably priced and are often priced exceptionally lower than when they were constructed. This means homebuyers can get a great deal on a home, or even a luxury estate with every amenity, with confidence the home will continue to increase in value.
Here in Placer County, the city of Lincoln grew at of over 300% in the last decade and was the fastest growing city in the country. As a result, a number of large developments were built in the southeastern region of the city. Many of which offer impressive homes in gated communities at significantly reduced prices.
Do Strong Price Increases Mean We’re Headed for Another Bubble?
The following infographic tracks Housing Price Index by state over the last decade to reveal the beginnings and effects of the housing bubble on U.S. housing prices.
In 2003, housing prices had already been going up for several years and, as the graphic illustrates, and they continued to climb strongly through 2006. It took the U.S. housing market several years of hefty gains to build up enough air to cause the bubble burst we experienced. Indeed this concurs with the CoreLogic report finding that U.S. housing prices are still 26% below their June ’06 peak. Take a look back at the S&P National Housing Price Index to see how far away we still are from the dizzying heights of the bubble.
How much will rising prices impact your mortgage payment?
Even with the price of homes increasing, interest rates are still quite low. The government is doing everything it can to energize the economy and that means borrowing money is cheap. It should be noted that a $10,000 increase in the value of a $500,000 home would represent roughly a $50 increase in the monthly payment with a 4% loan, whereas a 1% increase in the interest rate from 4% to 5% on a $500,000 loan represents a $300 monthly increase in the mortgage payment and over $100,000 in additional cost over the life of the loan. Wow, that’s huge!
It’s amazing how much of a difference 1% can make. Try it and see for yourself using our convenient Mortgage Calculator.
Simply put, the fact that home values are increasing is a great sign. A healthy housing market is one where home values increase responsibly and in response to economic conditions, not one where speculation and questionable lending practices drive home values up rapidly while median incomes are decreasing.
That’s right! Even with increasing housing value it’s still cheaper to buy, pretty much across the board. Home prices have been on the rise in 2013 but rents are still high in California and across the nation. Trulia’s March 2013 Rent vs. Buy Report shows that buying a home in the top 100 metropolitan markets is still less expensive than renting, demonstrating just how expensive renting can be. Trulia’s interactive map allows you to graphically access the report’s results and is quite informative and fun. It shows that even with a loan at 5.5%, San Francisco is the only market where it would be cheaper to rent if you stayed in your home for 7 years.
Rent Continues to Increase Nationwide
So why is it still cheaper to buy than to rent if housing prices have been increasing steadily? Because most people are still renting. The Zillow Rent Index shows consistent increases in rents in California, Sacramento, and San Francisco, among many others, over the past two years. Would-be homebuyers wary of the economy and the housing market are opting to rent. This is helping drive up the cost of renting nationwide. Large metropolitan cities like nearby San Francisco and Oakland have been hit particularly hard by increasing rental prices. It seems like the shadows of the housing crash are still looming over us as buyers’ fears of a second downturn continue to have unexpected effects on the housing market.
It’s not just the big cities feeling the squeeze. In some cases the average rental price in Placer County for a 2 bedroom unit rivals prices in San Francisco County. While residents of San Francisco may find themselves with no other options, as housing prices remain relatively high in the city, renters in Nevada and Placer County do have another attractive opportunity. With the allure of affordable housing prices, cities such as Roseville, Rocklin, and Granite Bay are likely to see an increase in home purchases as many buyers’ worries are quickly overshadowed by the weight of their monthly rent payments.
Higher rents mean it’s a good time to be a landlord as well. If you are looking to purchase a second home as an investment property, now is an excellent time. With a low interest rate on a mortgage and the ability to earn top dollar from tenant rents, it is easier to see greater returns from an investment property.
Stop throwing your money away on Rent!
Today’s housing market has a lot going for it: increasing rents, record low interest rates, drastically reduced down payments, and (most importantly) reasonably priced homes. The latest CoreLogic Housing Price Index reports housing prices are still more than 20% below their pre-bubble peak. Regardless of what the market is going to do tomorrow, the conditions today are hard to ignore. Going back to Trulia’s interactive Rent vs. Buy map, we can see that with a 4.5% mortgage and five years invested in a home it’s 22% cheaper to buy a home than it is to rent in the Sacramento Metropolitan Area. That is hard to ignore.
The next quarterly Rent vs. Buy report is due out soon. Will average rental prices continue to climb or will increased demand in the sales market finally start to slow the increasing cost of rent?
Even with unexpectedly strong increases in housing prices in the last 12 months, there’s still room for growth in the housing market. But how much?
The latest Core Logic Housing Price Index (HPI) data shows that national housing prices in March 2013 are up 10.5% from March 2012. After 19 months of consecutive decline in the year-over-year HPI, March 2012 showed a 1.13% increase over March 2011. For the last 13 months up until March 2013 that number has steadily increased to 10.54% based on the latest data. At first glance it may appear that we are seeing the beginning of another bubble, however appearances can often be misleading.
As Paul Diggle, Property Analyst for Capital Economics notes in the article, “…if house prices and incomes continued rising at their current rate, the house price-to-income ratio wouldn’t return to its long-run average until 2017.” It took the housing market 4 years to reach the dizzying heights of its peak just before the crash. This single year increase of over 10% is nothing compared to the unbridled increases we saw in the early 2000’s.
A quick look at CoreLogic’s data shows several states saw annual growth that EXCEEDED 10% for 3 consecutive years. Let’s take a look at an example of what that kind of growth means. A home purchased in 2002 for $500,000, would be able to sell for over $665,000 by the end of 2005. Growth like that simply can’t go on forever. If the trend had continued that same house would be worth around $1.3 Million today. If that is the type of return on investment you’re looking for in the housing market then you need to reconsider your investment plans
Markets reward those with patience. Remember when the U.S. Stock Market was falling with seemingly no end in sight? Well that same market is once again back to its old value and reaching for a new high. And that is what is driving the housing market these days: patience. Long gone are the days of homebuyers expecting to sell their home a year after purchasing it for a profit. Instead a new kind of apprehension and respect for the market has settled in, and that doesn’t leave much room for those looking to squeeze quick profits from the market.
In a statement made 5/16/13 CoreLogic predicts, “Home prices projected to increase 3.9 percent annually over next five years, following a 7.3 percent rise in 2012.” That is exactly the kind of consistent and healthy growth we’ve been looking for from the U.S. housing market since the crash. With regular scrutiny of the CoreLogic data we will continue to track this trend as we wait and see if their predictions ring true.
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SOURCE: S&P/Case-Schiller Housing Price Index
SOURCE: S&P/Case-Schiller Housing Price Index
