U.S. Quarter-Over-Quarter Home Prices Dip 1.6%, But Showing Signs of Life in 2011

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Based on Clear Capital's latest monthly Home Data Index (HDI) Market Report, quarter-over-quarter national home prices declined -1.6 percent. Despite the negative quarterly price change, the national index has demonstrated a positive trend since the start of 2011.

The HDI Market Report (through January 2011) provides a granular analysis of how local markets performed compared to the national trend in home prices. Clear Capital's HDI Index shows that U.S. home prices stopped declining in early January and have posted their first uptick since mid-August 2010.

"This recent national change in price direction is encouraging for the overall housing sector, yet it is still too early to determine whether this current uptick in home prices is a temporary reprieve or the start of a sustained recovery," said Dr. Alex Villacorta, senior statistician at Clear Capital. "This uptick is the first non-incentivized change in prices we've seen since the downturn began, and could provide great opportunity for buyers, sellers and investors alike. Although many markets still remain under significant downward pressure in light of increased distressed sale activities, it is clear that the severity of the downturns observed in October and November have subsided."

Turning of the Tide: Signs of upturn in U.S. home prices


 
Using sale transactions up through January, the HDI shows national home prices have turned the corner on their most recent decline. This change toward the positive for home prices is the first since mid-August, and signals the end of the pronounced price declines first observed by Clear Capital back in October and reported on more recently by the S&P/Case-Shiller 20 index as well as FHFA's non-seasonally adjusted national index. Furthermore, this observed change in prices is especially meaningful as the first months of the year are typically affected by the seasonal slowdown in sales activity, suggesting that buyer demand may be returning in anticipation of a potential start to a sustained recovery.

One primary driver that may explain the cause for the increase in prices is the slowing of the rate of sale of real estate owned (REO) properties.

REO Saturation Negatively Correlated to Clear Capital HDI


 
Illustrated in the graph above, every spike in REO saturation (REO saturation calculates the percentage of real estate owned properties sold as compared to all properties sold in the last rolling quarter) has corresponded with a decline in home prices, and vice versa. The most recent rolling quarter for REO saturation has slowed considerably after gaining 3.2 percent during Q3 2010, with national REO rates only climbing 1.4 percent. A decrease in REO saturation indicates that an increasing proportion of fair market transactions are occurring, and as the level of distressed transactions decrease, prices tend to increase since the overall market value for an area is less affected by distressed comparable sales. If this observed negative correlation persists, a leveling off of the national REO saturation rate could indicate that home prices are poised for further gains well ahead of the seasonal spring lift.

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National/Four Region Market Overview (Jan. 2010 - Feb. 2011)
 


Prices Experience Positive Start to 2011

• Since Jan. 1, 2011, national home prices have experienced the first positive gains since mid-August 2010 (0.9% in the first three weeks of 2011).
• National quarterly decline of 1.6 percent is a significant improvement from November's quarterly decline of 5.8 percent, further indicating a halting of price drops.
• The year-over-year national decline continued downward, but only marginally, with the yearly price change reaching -4.3 percent through January, down from the -4.1 percent reported last month.

National home price declines reversed their downward trend this month, with the current rolling quarter-over-quarter declines (-1.6% price change) leveling off near zero. All regions except the West experienced flattening quarterly price changes. The South and the Northeast posted effectively unchanged quarterly price movements, while the Midwest quarterly price changes have improved 8.0 percentage points since the Dec. 9, 2010 report.

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Metro Markets (Jan. 2010 - Feb. 2011)
 


Positive Near-term Results

• Marked improvement in near-term price changes with 13 of 15 markets posting positive quarter-over-quarter results.
• Four local MSAs experienced quarterly improvements of more than six percent compared to last month's report.
• The Honolulu, HI MSA was the only market on the list to experience reduced quarterly gains over last month's report.

Major markets in the U.S. are showing early signs of coming out of winter hibernation. Thirteen of the highest performing markets posted positive quarterly gains. Four MSAs posted large quarterly gains as compared to last month's report―Cleveland (12.6) and Dayton (9.6), Ohio; along with Houston (6.8), and Chicago (6.3); experienced the biggest quarterly percentage point improvements.

Cleveland's improvement can be attributed to a softening of the local foreclosure market and median home prices in Cleveland are less than $100,000. This implies that even moderate fluctuations―like an $8,000 swing―can translate into considerable percentage changes for this area. Further, Cleveland home prices are still down more than 55 percent from its market peak in 2006, demonstrating the magnitude of how far this troubled housing market has fallen during the last five years.


 
Today's Lows, Not so Low:

• Markets show signs of improvement; only the Detroit MSA experienced double-digit price declines
• Three-fifths of the lowest performing markets saw improved quarter-over-quarter results over last month.

In a clear sign of overall market improvement many of the lowest performing markets saw their quarterly rates of decline decelerate in this month's report. Nine of the fifteen markets listed above experienced improved quarterly results over last month's report. The price changes of these markets continue to flatten with the average quarterly decline less than 6.0 percent through January 2011. That's down from 8.3 percent last month (through December 2010), and 9.8 percent through November 2010.

Only Detroit, MI; Fresno, CA; Las Vegas, NV; Raleigh, NC; San Francisco, CA; and Tampa, FL experienced larger quarterly price declines over last month. Detroit's -12.4 percent quarterly price change is up 2.7 percentage points from the end of December as the MSA continues to be dogged by high levels of distressed housing activity and a troubled economic environment with double digit unemployment throughout the state.

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