Western U.S. Dragging Down Home Prices

March 10, 2011 (Shirley Allen)
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Home prices in the United States showed a slight decline overall for the three month period ending in February 2011 according Clear Capital’s Home Data Index (HDI), but the Western region of the U.S. is poised for a double dip by the end of the first quarter, 2011, if current trends prevail.

The HDI reports a quarter-over-quarter price decrease of 1.4 percent through the most recent quarter ending in February largely due to the 4.5 percent decrease in prices in the western U.S. The report predicts that the western region could experience a double dip as soon as next month.

Prices dropped 1.6% in the Midwest, increased 0.3% in the Northeast and remain flat in the South.

“Despite distressed inventory pressure and traditional winter inactivity, current trends are continuing to show a softening of price declines,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “The 3.9 percent quarterly decline we observed in December has given way to moderating declines with the national price index now down only 1.4 percent, suggesting a leveling of prices is on track for spring.”

The report expresses several positive factors that enforce their belief that the price declines are softening and that prices may be bottoming out. Pointing out that compared to 2009, in the current economic environment, credit is becoming more available (albeit still limited), institutions have a better understanding of distressed pricing and marketing, as well as the damaging effects of flooding the market with distressed inventory. In addition to market participants being better informed, unemployment has finally ticked downward to 8.9 percent from its peak of 10.1 in October of 2009, GDP has ticked up 4.2 percent, and the Dow Jones continues to add point’s on-top of its already impressive 80 percent-plus two-year return.

However, these positive signs have yet to extend into the greater housing market as distressed activity and inventories remain highly elevated. And although home prices nationally have increased by 4.2 percent over the last two years, some markets and regions are on the verge of reaching new lows.

“From a larger perspective, prices are still up 4.2 percent off of the absolute lows of the housing crash, a sign that long term gains can be realized amidst the volatile behavior of the last two years,” added Villacorta. “Yet, when comparing this growth to other economic indicators over the same time period, it is clear that the housing market still has a long way to go toward a sustained recovery.”

As prices continue to slide, new record price lows for the West are only 0.7 percent away and could be realized as early as next month. Not surprising, Las Vegas, NV (-22.2%); Tucson, AZ (-20.8%) and Phoenix, AZ (-17.1%) lead in terms of poorest price performance over the past two years. What might not be expected is that Seattle, WA (-16.9%) and Portland, OR (-14.6%) experienced the next poorest positions, largely a result of the approximately one year delay both these markets have experienced compared to the national cycle.

Other struggling markets also continued to see prices erode. Detroit prices fell the most over the last three months, down 13.3%, followed by Milwaukee, Wis. (down 13.1%), Raleigh, N.C. (down 10.5%), Dallas, Texas (down 9.3%) and Fresno, Calif. (down 7.6%). Other under performing markets in the West include Sacramento, Portland, Ore., and San Francisco.

Memphis home prices performed the best over the three months ended in February, up 7.6%, followed by Rochester, N.Y. (up 5.4%), Atlanta, Ga. (up 4.1%), Cleveland, Ohio (up 3.8%) and New York, N.Y. (3.7%).

Tags: Clear Capital, Home Data Index, housing prices, double dip, distressed pricing, distressed properties, national price index