U.S. Home Price Gains Shrink to 3.7%, Says Clear Capital

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National quarterly price gains continue to slow as the winter season approaches; investor activity helps Riverside, Calif. and Miami, Fla. price improvements; and muted REO influences help limit price declines in Seattle, Wash.

(TRUCKEE, CA) -- Clear Capital released today its monthly Home Data Index™ (HDI) Market Report. This month's report features data compiled through Oct. 25, 2009.

Report highlights include:

• National / Four Region Overview: The national quarterly price change extended its softening trend, posting a 3.7 percent gain, while the national year-over-year price decline was trimmed again, producing single digit losses for the second month in a row (-8.4%).

• Metropolitan Statistical Area (MSA) drilldown: Quarterly price gains remained strong among the highest performing major markets, helped by the continued decline in the percentage of total sales that are real estate owned (REO).

"Nationally, both the top and bottom performing markets are converging to modest quarterly changes, indicating a return to stable markets," said Alex Villacorta, Sr. Statistician, Clear Capital. "As we've seen since the spring season, many markets have returned to traditional seasonal fluctuations and the strong summer gains are showing signs of slowing."

"The continued decline in REO saturation rates, as well as an increase in the proportion of cash buyers in both distressed and fair market sales, are an encouraging sign of investor optimism coming into the traditionally slow months," added Villacorta. "If the home buyer tax credit is extended and possibly expanded, it could add even more momentum through the slow months to build up to a very strong spring in 2010 as more buyers are sensing that home prices truly have hit the bottom of the current cycle."

National/Four Region Market Overview (Sep. 26, 2008 - Oct. 25, 2009)



The national year-over-year price decline was trimmed another 1.5 percent, producing single digit losses for the second month in a row (-8.4%). The national quarterly price change extended its softening trend, posting 3.7 percent gains -- down from the 6.3 percent gains experienced last month. This pattern held true across all four regions which continue to post more consistent price changes, a likely reflection of more uniform lending and foreclosure practices, along with a reduced influence of the REO segment. This month's national REO saturation rate declined to 28.0 percent--a 5.1 percent improvement since July.

The softening gains reflect a step back from this year's strong summer price increases spurred by the deeply discounted prices of last winter, homebuyer incentives and a general sense by investors that the bottom of the price decline was occurring. Investor activity does appear to be on the rise. This past year, the proportion of REO purchases made with cash, as compared to all purchases, grew 12.4 percent. Homes purchased with cash, compared to a traditional mortgage, are more prevalent among investors than those purchasing a primary residence. The magnitude of this increase indicates investor activity is contributing to the recent gains in home prices and has the potential to carry us through the normally slower winter season.
 
Metro Markets (Sep. 26, 2008 - Oct. 25, 2009)
 


Quarterly price gains remain strong among the highest performing major markets, helped by the continued decline in the percentage of total sales that are real estate owned (REO). Only New Orleans, La., Louisville, Ky. and Cleveland, Ohio saw increased REO saturation rates, and even then the increases were slight (less than one-half percent each).

Excluding the additional one percent quarterly improvement in New Haven, Conn., all the markets experienced slowing quarterly price gains, continuing last month's general shift to more moderate gains. On average, the highest performing major markets saw a decrease of 5.5 percent in their quarterly gains. If this trend continues into the winter, it is possible that some of the current top performers will see single digit quarterly gains or even quarterly declines by the new year. This plausible scenario, while a slowdown, would still represent a significant improvement from the extreme and broad price declines and elevated REO saturation levels experienced last winter.

Of particular note, the price spike we've seen in Cleveland has started to diminish, dropping to 26.0 percent for the quarter, while continuing to post a strong yearly price increase (50.4%). Cleveland returned a flat REO saturation rate as compared to last month, as well.
 



The lowest performing major markets continue to reflect the relatively healthy changes that occurred across the nation in recent months, with only two modest quarter-over-quarter losses present. However, the similarly minor and reduced gains in these markets serve caution that we may experience a pause in price increases as we head into winter. Las Vegas, Nev., Tucson, Ariz. and Riverside, Calif. saw slight improvements in their quarterly gains compared to last month, while the remaining 12 markets saw continued gains but of reduced magnitude.

Raleigh, N.C. experienced the largest increase in REO saturation since last month, but its modest 1.4 percent increase reflects a general stability in these markets. Although six other markets (Tucson, Charlotte, Jacksonville, Richmond and Seattle) experienced minor increases in REO saturation, the average increase was just 0.7 percent. The remaining nine markets saw declining REO saturation rates, generally seen as a positive sign, with a combined average reduction of 2.1 percent.

The Riverside and Miami MSAs continue to experience improved results, having dropped from near the top to the bottom of the list over the past few months. Both are experiencing a much higher percentage of cash sales, which is indicative of heightened demand by investors for all property types, not just REOs. Historically, these markets have seen cash sales account for less than ten percent of all non-REO sales. Currently, Riverside is seeing 23.6 percent of all non-REO sales completed without financing (i.e. cash sales), and Miami is experiencing an even greater 30.3 percent. These high percentages in non-REO cash sales highlight the magnitude of investment activity which has spread beyond the REO segment.

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