Us house prices moderate for 11th consecutive month
Photo credit: Michael Patrick
Figures from Clear Capital show that the market's stabilisation is spreading across the country, with national home price gains falling to 6.7 per cent year-over-year and 1 per cent quarter-over-quarter.
National trends were echoed at the regional level, with the West seeing the strongest moderation across the country. In fact, for the first time since the start of the recovery three years ago, the West’s yearly rates of growth fell below 10 per cent, a sure sign of more moderation to come over the next several months for the nation.
Clear Capital's research suggests that the shortage of lower priced inventory is the catalyst for stalling gains, with distressed saturation down to just 16.8 per cent.
Cash buyers competing for distressed and low-tier inventory helped to jump start the overall recovery, while supporting healthy price growth in this segment. At the height of the recovery in 2013, national prices including distressed sales outperformed the performing-only sale segment of the market by 4.2 per cent. Now the all sale segment is outperforming the performing-only sale segment by 3 per cent. These segments’ rates of growth will likely continue to fall in line with each other as investor engagement dwindles—a result of fewer distressed sale opportunities. As this occurs, markets will be more reliant on performing-only sale demand and price growth.
The report warns, though, that there could be trouble in the road ahead.
"Improvements in the broader economic landscape have not instilled confidence in traditional home buyers (first-time, move-up, second home owners)," says Clear Capital. "The general lack of demand in the performing-only segment, coupled with a dwindling supply of distressed inventory, leaves the future of home prices squarely in the hands of traditional home buyers, who have yet to show any signs of re-engaging. Performing-only sales are not yet strong enough to support recovery-sized market growth without distressed sales."
Indeed, it’s been a steady descent for national yearly rates of growth, which have dropped 5 percentage points from a high of 11.7 per cent in December 2013.
"Think of home price growth since the housing collapse as a bouncing ball, where each successive bounce causes some energy to be lost and eventually movement stalls," says Dr. Alex Villacorta, vice president of research and analytics at Clear Capital.
"We see this on a few different levels. First, we see the delta between performing only and all sales, including distressed sales, merging (Graph 1). This confirms markets are no longer driven as much by investor demand for discounted distressed assets.
"Additionally, we see notable weakness in the performing-only sale segment, a sign that non investor buyers are not engaged enough to support the recovery. As markets continue to normalize, we’ll see reduced growth from the distressed segment, which is a good thing for the market overall as the legacy of the housing crisis fades in the rear-view. Yet, should national rates of growth turn to losses as a result, non investor homebuyers will likely further disengage. Quarterly losses could snowball into yearly losses, and create a negative feedback loop. At this point, the market showing signs of weakness is a cause for concern."