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September 8, 2012

“Phase 2″ of the recovery: the best housing news we have seen yet

by Rylan Stewart
Real Estate (1.2)

On Thursday, September 6, we read a report that contained some of the best real estate that we have seen since the 2008 crash.

The housing market recovery is no longer driven by investor purchases of distressed properties, according to the August Home Data Index (HPI) report by Clear Capital, an industry leader in real estate data.

Clear Capital suggests that we are on the border of “Phase 2″ of the recovery – a more “mature” base for growth, with demand fueled by consumers looking to buy owner-occupied properties.

August home prices rose 2.9 percent year-over-year and 0.7 percent from the previous month on a national level. All four regions posted gains, led by the West (7.7 yearly rise, 3.8 percent quarterly rise). The lowest performing 15 metropolitan areas amassed a 0.0 percent yearly change in price, suggesting that the market “floor” has been roughly set.

Even more positive, the growth of “fair market” prices occurred even as the “saturation” of REO properties (lender owned) on the market declined to 20.5 percent in August, the lowest level since April of 2008 (16.3 percent). In fact, fair market prices outpaced REO prices for the first time since April 2011.

These home purchases are increasingly driven by average consumers seeking owner-occupied properties, as opposed to investors looking for a bargain. Investor activity has fallen by about 30 percent from 2011 levels.

The significance of this market composition cannot be overstated.

The drop in housing prices during the recovery was led partially by the saturation of “distressed”, foreclosures on the market. Lenders, eager to unload supply, sold these properties at deeply discounted prices and investors stood ready to lap up swaths of these bargains.

As median sales price fell so did home valuation, and with little demand, home prices went into a downward-spiraling negative feedback loop.

As time passed and investors bought up the cheap foreclosure properties, the share of REOs on the market slowly shrunk, causing national median home price statistics to show positive, year-over-year growth. While major indexes trumpeted the “recovery” of the housing market, the numbers were primarily evidence that foreclosure activity had declined.

To look at just “median home prices” while ignoring the makeup of those numbers can lead to misperceptions about the state of the housing market.  We have written extensively about home prices and the importance of this context. Local real estate statistics authority Keith Byrd has focused on this as well, naming it the market’s “foreclosure mix.”

The real test for the market would be when the price of single-family owner-occupied homes rallied, signaling that average families were buying back into the market.

With this report, it seems we are finally at the beginning of the next step in real estate recovery.

 

Central Coast Lending is a California mortgage brokerage based in San Luis Obispo County. With offices in San Luis Obispo, Morro Bay, Paso Robles, and Arroyo Grande, Central Coast Lending is the top source for Central Coast mortgage, real estate, and home loan needs. To see why using a broker offers lower rates and superior service, click HERE. For a free, hassle-free online pre-qualification click HERE or call 805.543.LOAN to talk to one of our expert loan officers.

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