ClearCapital: California Dreamin' -- Are Home Prices Eroding the California Dream?

RENO, NV--(Marketwired - October 05, 2015) -

• A California cooling effect could put a freeze on nationwide appreciation and a sustained housing recovery. Since 2012, the churn of California price appreciation has buoyed the West, and helped support nationwide appreciation. As we enter Fall, data through September 2015 reports cooling price appreciation across the state.
• Affordability in high-priced California markets is out-of-reach. Typically, price increases are driven by increases in demand. A look at the San Francisco housing cycle (Graph 2) shows that between 2011 and 2015 the spike in prices has not been the result of increases in overall transactions. Rather, the tight supply is pushing prices on an upward trajectory placing the market even further out of reach for new buyers. In slower growth markets like Los Angeles, a mortgage payment requires upwards of 70% of a potential first-time home buyer's income, certainly quelling demand.
• Even the San Jose MSA's appreciation, which began experiencing dramatic bubble-like growth in 2013, is beginning to slow down with quarterly growth of 2.5%-less than half of the 5.8% quarterly growth seen two years ago.
• Since Q1 2015, six California MSAs have observed home price depreciation (Graph 1). While the West continues to lead in sustained gains, markets outside of California will need to work harder to defend the region's top position.
• Las Vegas and Portland, OR have both seen boosts of 0.2% in quarterly growth since last month. Denver, Seattle and Sacramento continue to hold steady at 1.7%, 1.6% and 1.5% quarterly growth.
• The Midwest and South continue to ride the wave of the peak summer real estate season with quarterly growth rates at or above the national benchmark of 0.8% (Chart 1). The South ends the quarter at 0.8% growth, and the Midwest ahead at 0.9%. Subsiding losses in the Southern region is a good sign for a region that has exhibited volatility in price trends.
• The Northeast continues to lag behind the rest of the nation in both quarterly (0.2%) and yearly (2.1%) growth. While most of the MSAs in the region are still experiencing positive quarterly growth, with the exception of Providence, RI (-0.8%), the rate of growth in markets like Boston and New York are over double that for the rest of the region, driving down affordability.
• Contact Brian Opsal for your September 2015 file of the Top 30 MSAs or to access our data on the Bloomberg Professional service by typing CLCA <GO>.

"The strong continued growth in the Midwest, South and West, in particular the California Bay Area, suggests strong consumer and investor confidence has been seemingly unaffected by talk of looming interest rate hikes by the Fed," says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. "However, if and when interest rates do rise, likely occurring by the end of 2015, it will be timed with a decrease in real estate market activity typical through the fall and winter seasons.

"This unfortunate pairing will most likely cause a slowdown in price growth for most markets, which already seems to be in motion across much of the country. In bubble markets like San Francisco, San Jose and Los Angeles, growth has been unsustainably high in the last year fueled in large part by the white-hot rental market and low inventory environment. In fact, current prices in San Francisco County are far beyond any historic level on a real basis and are doing so with some of the lowest level of activity this county has seen.

"Given the current obstacles to enter these markets, a rate hike is likely to have a negative impact, specifically making it more expensive for first-time home buyers to engage. In addition to high home prices, these markets also suffer from high rents, which prevent potential home buyers from saving for down payments. With the barrier to entry too high, a younger segment of potential home buyers may start to turn their sites eastward-to the Midwest and South, where affordability continues to be within reach.

Chart 1. National and Regional Markets Through September 2015. Source: Clear Capital

Chart 2. Highest Performing Major Metro Markets Through September 2015. Source: Clear Capital

Chart 3. Lowest Performing Major Metro Markets Through September 2015. Source: Clear Capital

About the Clear Capital^® Home Data Index (HDI) Market Report
The Clear Capital HDI Market Report provides insights into market trends and other leading indices for the real estate market at the national and local levels. A critical difference in the value of the HDI Market Report is the capability of Clear Capital to provide more timely and granular reporting than nearly any other home price index provider.

The Clear Capital HDI Market Report

• Offers the real estate industry (investors, lenders, and servicers), government agencies, and the public insight into the most recent pricing conditions, not only at the national and metropolitan level, but within local markets as well.
• Is built on the most recent information available from recorder/assessor offices, and then further enhanced by adding the company's proprietary streaming market data for the most comprehensive geographic coverage and local insights available.
• Reflects nationwide coverage of sales transactions and aggregates this comprehensive dataset at ten different geographic levels, including hundreds of metropolitan statistical areas (MSAs) and sub-ZIP code boundaries.
• Includes equally-weighted distressed bank owned sales (REOs) from around the country to give the most real world look of pricing dynamics across all sales types.
• Allows for the most current market data by providing more frequent updates with patent pending rolling quarter technology. This ensures decisions are based on the most up-to-date information available.

Clear Capital^® HDI Methodology

• Generates the timeliest indices in patent pending rolling quarter intervals that compare the most recent four months to the previous three months. The rolling quarters have no fixed start date and can be used to generate indices as data flows in, significantly reducing the multi-month lag time experienced with other indices.
• Includes both fair market and institutional (real estate owned) transactions, giving equal weight to all market transactions and identifying price tiers at a market specific level. By giving equal weight to all transactions, the HDI is truly representative of each unique market.
• Results from an address-level cascade create an index with the most granular, statistically significant market area available.
• Provides weighted repeat sales and price-per-square-foot index models that use multiple sale types, including single-family homes, multi-family homes, and condominiums.

About Clear Capital^®

Clear Capital is a nationwide provider of real estate valuations, data and analytics, quality assurance services and technology solutions. The Company's customers include mortgage lenders, servicers, investors, GSEs, and Ratings Agencies. Clear Capital products include appraisals, broker price opinions, property condition inspections, value reconciliations, appraisal review and risk scoring, automated valuation models, home data indices, and platform solutions. The Company's innovative technology, experienced valuation experts, and a well-trained network of more than 40,000 field experts sets a new standard for accurate, up-to-date, and well documented valuation data and assessments. Morningstar Credit Rating issued Clear Capital its highest Residential Vendor Ranking - MOR RV1. Clear Capital's home price data can be accessed on the Bloomberg Professional service by typing CLCA <GO>.

The information contained in this report is based on sources that are deemed to be reliable; however no representation or warranty is made as to the accuracy, completeness, or fitness for any particular purpose of any information contained herein. This report is not intended as investment advice, and should not be viewed as any guarantee of value, condition, or other attribute.

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