US Housing Market Research Overview
Despite slowing appreciation, US housing market research indicates that this summer selling season will be another strong season. With more inventory, we expect home sales to continue rising and the housing market will continue its path to a full recovery. Affordability will become an issue in some housing markets this year, and in fact, already is an issue in several markets, particularly on the West Coast. As inventories of for sale homes continue to climb, home price appreciation will continue to ease.
US housing market research, released today by Zillow, shows that the price of homes nationwide rose 0.1 percent from January 2014 to February 2014 to $169,200. On a year-over-year basis, housing prices were up 5.6 percent from February 2013. The last time national home values were at this level was in November 2004.
Rents were up 2.8 percent on a year-over-year basis. The Zillow Home Value Forecast calls for 3 percent appreciation nationally from February 2014 to February 2015, which is roughly half the rate of appreciation we saw in 2013.
Many markets are experiencing above-normal rates of home value growth. Among the nation’s 35 largest metros, all but St. Louis experienced year-over-year home value increases in February. Those with the most notable annual increases in January include Riverside (25.0 percent), Las Vegas (24.9 percent), Sacramento (19.5 percent) and Orlando (18.4 percent).
We are seeing slowdowns across the country, even though the price of homes continue to appreciate in value. Increasing levels of for-sale inventory is largely causing the slowing in home value appreciation. In February, inventory rose year-over-year by 5.5 percent nationally, but still remain low overall. The majority of metropolitan areas also saw an increase in inventory levels on an annual basis.
The increasing levels of inventory is giving buyers more homes to choose from. With more to choose from, buyers are less apt to engage in bidding wars, resulting in slowing appreciation of home prices which will continue to slow into 2014. This means that some markets will become more favorable for buyers this year, or at least relatively more favorable compared to 2013. In terms of negotiating power, sellers in the West will likely have the upper hand in negotiations when selling their home, while buyers in Midwestern and East Coast metros will likely face less competition and have more room for bargaining on prices.
Our February 2014 housing market research includes data from 514 metropolitan and micropolitan US housing markets. In February, 293 (57 percent) of the 514 markets showed monthly home value appreciation, and 426 (82.9 percent) of the 514 markets saw annual home value appreciation. Four of the 35 largest metro housing markets experienced monthly home price depreciation in February. The biggest price declines in US housing markets were in Kansas City (-0.8 percent) and Phoenix (-0.5 percent). Housing prices are still 13.8 percent below the April 2007 peak of the US housing market.
Rental Market Overview
The Zillow Rent Index (ZRI) covers 846 metropolitan and micropolitan areas and shows year-over-year gains for 634 metropolitan areas covered by the ZRI. Currently national rental rates are up 2.8 percent year-over-year. Large markets that saw extremely strong annual rent appreciation include Cincinnati (10.2 percent), Pittsburgh (10 percent), Seattle (8.0 percent) and Denver (7.6 percent).
Housing Market Inventory
The number of homes listed for sale on US housing markets rose 5.5 percent annually in February, marking the sixth straight month that inventories have risen year-over-year. Inventories of for sale homes increased in 461 of the 648 metropolitan housing markets tracked for inventory data. Despite broadly increasing inventory levels, inventory in most metros is still not back to normal levels. As a result, we will still likely see bidding wars over what inventory is available in 2014, but probably much less than what occurred in 2013. These conditions significantly favored sellers in 2013.
As we move through 2014, buyers will find themselves with more negotiating power, but many regions in the US are still dominated by seller markets. In our January Buyer-Seller analysis, we found that sellers in the West will likely have the upper hand in negotiations when selling their home, while buyers in Midwestern and East Coast metros will likely face less competition and have more room for bargaining on prices. In this analysis, a sellers’ market is not necessarily one where home values are rising, but rather one in which homes are on the market for a shorter time, price cuts occur less frequently and homes are sold at prices very close to (or greater than) their last listing price. In buyers’ markets, for sale homes stay on the market longer, price cuts occur more frequently and homes are sold for less relative to listing prices.
Foreclosures are retreating and fewer foreclosed homes are impacting the US housing market. The last time the pace of foreclosures was this low was in December 2007. The rate of foreclosure nationally continued to decline in February to 4.97 out of every 10,000 homes in the country being liquidated. Nationwide foreclosed homes being re-sold also continued to fall, now making up 10.5 percent of all sales in February, which is down 0.5 percent from February 2013. Nationally, the pipeline of foreclosures is slowly diminishing; however, judicial foreclosure states, such as New York, New Jersey and Connecticut, are much slower in clearing the backlog of foreclosed homes.
US Housing Market Outlook
Home value appreciation will slow in 2014 and some housing markets will experience housing price depreciation. Despite slowing appreciation, this summer selling season will be another strong season. With more inventory, we expect home sales to continue rising and the housing market will continue its path to a full recovery.
There are certain headwinds that still face us. Affordability will become an issue in some markets this year, and in fact, already is an issue in several markets, particularly on the West Coast. As housing inventory levels continue to climb, appreciation rates will necessarily continue to ease, which will help affordability, even though demand should continue to rise.
Another risk factor is the slowing reduction in negative equity brought on by slowing appreciation rates. Currently, negative equity is still relatively high in many housing markets across the US. Nationally, 19.4 percent of mortgaged homeowners are underwater. Our forecast calls for another 3 percent appreciation from February 2014 to February 2015, which is in line with historical norms. Still, 88 out of the 298 markets covered are projected to experience home value appreciation of 3 percent or higher over the next 12 months, showing that pockets of locally high appreciation will persist for a while.