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Is Slow, Sustained Growth a Return to Normalcy or a Sign of Continued Volatility Ahead?
RENO, NV --(Marketwired - January 11, 2016) - The overall Clear Capital® Home Data Index™ (HDI™) forecast for the nation throughout 2016 is positive, with projected home price appreciation in the range of 1% to 3% by January 2017. Although this range historically has represented a stable housing market, it's significantly lower than the 5.1% growth rate during 2015 and the 6.6% growth rate in 2014, demonstrating continued market instability and a trend of decreasing rates (see Graph 1). While we would love to sugarcoat the HDI data and declare that 2016 merely will be a normalization of the housing market to historical averages not seen since the late 1990s, several factors indicate that it could be another volatile year leading to ongoing uncertainty about the future of American housing.
Ultimately, overall national growth will be positive throughout 2016, but these rates are underwhelming and signal the end of the explosive growth typical of the first half of this decade. The forecast is predicting an average of only 0.4% quarter-over-quarter (QoQ) growth for each quarter during 2016 (see Graph 2). Growth in this range is rather lackluster when compared to the previous two years, when home prices grew by an average of 1.5% quarterly over the period from January 2014 to January 2016.
The forecast also shows a similar story for the Northeast, South, and Midwest regions of the nation: positive but relatively slow gains (see Chart 1). The Midwest is projected to be the fastest-growing region in the country with an average rate of 0.6% quarterly growth (2.5% annual) over the forecast period, while the South is close behind with an average of 0.5% QoQ growth (2.0% annual) during the same period. The Northeast lags behind these regions, projecting an average uptick of only 0.1% QoQ growth (0.4% annual) throughout 2016.
Generally, year-over-year growth rates are forecasted to be lower for all MSAs in the nation, with no exceptions (see Chart 2). The highest growth in 2016 is forecasted to occur in Denver, where home prices are projected to grow by 7.7% during the course of the upcoming year, compared to the 11.7% annual growth seen in 2015.
"The market continues to move forward, yet the bumps of volatility still remain," says Alex Villacorta, Ph.D., vice president of research and analytics at Clear Capital. "In particular, the combined forces of increased mortgage rates, volatility in the equity markets, and the unfolding effects of TRID are likely to give consumers pause in taking an active role in housing in 2016. The psychological effects of the recent interest rate increase could have a more negative consequence in some markets than the actual rate hike itself, as buyers begin to question the decision to invest in the housing market at what looks like the end of a meteoric four-year growth cycle. This, coupled with the fact that several of the fastest-growing MSAs have already begun to slow down or stagnate even before the rate increase occurred, could spell trouble for the national housing market as a whole if overseas investors begin to look elsewhere for money-parking strategies. However, there are still attractive investment opportunities in at least one corner of the market; the lowest tier of the housing market still holds the most promise, as long as the potential home buyers of this market segment aren't forced out due to the increasing cost to borrow.
"The long-term effects of some recent housing industry shake-ups are still out, but the models have reacted in a pessimistic way. With the nation projected to grow at a snail's pace in some regions while virtually standing still in others, our models are taking into account the effects of the interest rate increase by the Fed in December 2015. Industry shocks like this have the potential to affect the market in unfavorable ways, lowering consumer confidence and instilling some level of doubt in the industry. While the real estate market is typically cold in January, it's difficult to tell if the effects of these market changes have been realized quite yet. Until the market gets a chance to really heat up again -- or not -- in the spring, our models are staying consistent and forecasting a significant drop in growth for 2016."
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
The Clear Capital HDI Methodology
About Clear Capital
Clear Capital (www.clearcapital.com) is the premium provider of data and solutions for the mortgage finance industry. The Company's products include appraisals, broker price opinions, property condition inspections, value reconciliations, automated valuation models, quality assurance services, and home data indices. Clear Capital's combination of progressive technology, high caliber in-house staff, 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. The Company's customers include the largest U.S. banks, investment firms, and other financial organizations. 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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