Housing Bubble 2.0

TRUCKEE, CA--(Marketwired - March 02, 2015) -

• While four of the California Bay Area's nine counties are near or exceeding their pre-meltdown valuation highs, our data suggests local market forces will keep bubble-like behavior at bay for the rest of the state and throughout the nation. Healthy buyer demand and strong job markets in the California Bay Area are factors helping to push home prices up. Our most recent data through February 2015 shows the Marin, San Francisco, San Mateo, and Santa Clara counties approaching or exceeding their peak levels over the last 18 months.
• San Francisco and San Mateo counties have exceeded peak levels on an all property tier level (low, mid, and top tiers). San Francisco is now 16% above former peak levels, while San Mateo County is 8% above. 
• On the cusp are Marin and Santa Clara counties, just 2% and 3% respectively, below their prior peak levels at the all tier level.
• The West, still 22% below peak pre-recessionary levels, and the State of California, 27% below peak as a whole, douse concern of a bubble nationwide.
• Yet, in spite of its peak-level performance, the Bay Area housing market is showing signs of cooling price gains, as opportunity for affordable housing is scarce. Data through February 2015 shows early signs of cooling in San Francisco and San Mateo counties. San Francisco and San Mateo counties' quarterly growth rates peaked in the second quarter of 2013 at 6.6% and 5.9% respectively, but have decelerated in each quarter since.
• San Francisco county's price gains fell into negative territory by 0.3% at the all tier level in February. We observed the largest decline, of 0.5%, in the top tier segment. This time around, it's the top tier that's cooling first -- the inverse of what occurred in the last bubble.
• The same is true in San Mateo county with the all tier slowing to current quarterly growth of 1.2%, half of the previous period, and top tier segment price gains going negative by 0.4%.
• The all tier also cooled in Santa Clara county, with growth down to 0.4% from 1.4% in the previous quarter. Santa Clara county's top tier has been exceeding its peak-level performance for the previous six rolling quarters, going back to October 2013, though our latest data shows this tier slowed to a 0.2% growth rate.
• Our February data also shows a low percentage of distressed properties in the Marin, San Francisco, San Mateo, and Santa Clara counties. The California Association of Realtors reports an unsold property supply of 1-2 months for these areas, indicating a sellers' market. These counties together exhibit a median home price exceeding $650,000. The median home price in San Francisco and San Mateo counties alone currently exceeds $800,000. Falling prices in these two counties suggest constrained availability of existing properties has eroded affordability in these areas, leading some to delay their buying decisions while they wait for the market to open.
• Despite historically low interest rates, the West continues to experience moderation in home prices, with gains falling to 7.6% year-over-year in February. The Western region's all tier gains fell to just 1% in February down from 1.7% the previous rolling quarter. Over the previous two quarters, the West has succumbed to single digit gains. In fact, year-over-year gains have decreased at a rate of two percentage points for the past four consecutive rolling quarters. Despite this, the West continues to lead in quarter-over-quarter price gains, as well as yearly gains over the other three regions. Nationally, quarterly home price gains currently sit at 0.6% for February, and yearly gains are at 5.8%. 
• Contact Alanna Harter for your February 2015 file of the Top 30 MSAs or to access our data on the Bloomberg Professional service by typing CLCA <GO>.

"The fact that we are now seeing quarterly declines in arguably one of the hottest markets in the country should be a stark reminder that the state of the overall housing market continues to be tenuous," says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. "Buyers may have finally reached their limits in response to red-hot price increases, and as such are pulling out of the demand pool. If waning buyer demand continues through the first part of the year, we could see inventory increase, and in response falling home prices well into the second quarter.

"Extending beyond the Bay Area, all of the bottom performing 15 markets are either already showing negative quarterly returns or are within .5% of doing so," says Villacorta. "While not all markets are in bubble territory or on the precipice of declines, the market overall is at an inflection point. The aggressive run of price growth that started in 2013 has clearly subsided, and like all inflection points, market participants must be vigilant of local market conditions to ensure their interests aren't on the downside of any price swings back into negative territory. Given the lackluster start to key housing metrics this year, we continue to stand by our start of year predictions of 1-3% growth for the full year."

Graph 1. San Francisco County Falls Negative in February 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, and home data indices. 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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