Quarterly Housing Forecast - January 2013
Jan 16, 2013
Featuring Eric Fox, Vice President of Statistical & Economic Modeling
January 2013 Podcast Transcript - Duration: 8 minutes
Adrienne Ainbinder, Moderator: Welcome to Veros Real Estate Solutions’ monthly podcast. Today, Eric Fox, Vice President of Statistical Modeling for Veros will provide an overview on VeroFORECAST’s latest housing market update. I understand there is some good news for our listeners today.
Eric Fox: I would say that’s definitely true. For this quarter’s VeroFORECAST update, we’re showing that on average for our Top 100 metropolitan markets, we expect 1.2 percent appreciation over the next 12 months, so now this is the second quarter in a row where we’ve seen appreciation in our forecast. So, this gives us very strong evidence that we’ve hit the bottom and now are in full recovery mode.
Adrienne Ainbinder: That’s, obviously, news everyone should be happy to hear. Now, but before we get too excited, how certain are you that that’s the case?
Eric Fox: Well, number one, Veros takes a very conservative approach with respect to our forecasts. Also the last quarter’s forecast which we made in September 2012 was the first indication we saw of an overall increase, so now, that we see that this quarter, that gives us even that much more certainty. Then, thirdly, we have the highest accuracy in the forecast industry, so we have a history over the last decade of being correct. So, again, this is something that we’re very good at.
Adrienne Ainbinder: Now, Phoenix has been leading the forecast for the last three updates, and according to the current forecast, it’s the first market to have double digit appreciation expectations since 2006. This is most interesting considering Phoenix has been one of the areas hit hardest from the market turn, so what’s going on there?
Eric Fox: Well, that’s right. Phoenix, we now have a forecast of 10.5 percent for the next year, and the Phoenix market is all about the drastically reduced housing supply which has plummeted 70 percent over what it was at its peak and the market was at a bottom. Right now, Phoenix has great affordability, and combined with low interest rates, this is really causing a significant demand.
The low supply and high demand in conjunction with Phoenix area’s low unemployment rate of 6.8 percent, and that’s dropping quickly compared to the national average of 7.9 percent, really sets the stage for it to be our top performing market. There’s also a large investor market in Phoenix for the entry-level homes.
Adrienne Ainbinder: Now, I see the other markets Veros’ forecasts performing well throughout 2013, includes some areas in Florida, Texas, and Colorado. Now, Eric, are they showing the same indicators that you see in Phoenix, or do they have their own blend of positive forces working for them?
Eric Fox: Well, a lot of them have some of the similar features, but then there are other things for these markets that are very unique. For example, Midland, Texas, our No. 2 performing market, is expected to appreciate 9.1 percent in the next 12 months. Midland is really benefitting from the oil boom, and its unemployment rate is a dramatically low 3.4 percent. So, that’s really driving demand there.
When we look at a market in Florida, like Miami, that’s our number three at 7.8 percent, again the supply there has dropped, but it’s also got a very large demand from international buyers recognizing that Miami’s affordability is lower than it’s been in quite some time. When we look at a market like Denver, Colorado, there their supply has also dropped, but they’re being fueled by growth in the energy sector as well.
Adrienne Ainbinder: So, someone has to be at the bottom of the list. Tell me who’s struggling and why.
Eric Fox: Well, surprisingly a lot of our worst performing markets are in the New England or northeastern portion of the United States. Unemployment tends to be a factor here. They generally are very high. Poughkeepsee is our worst performing forecast market at -3.1 percent where the unemployment rate there is at 8.3 percent, and foreclosure inventory continues to increase.
Our No. 2 worst performing market, -2.6 percent is Allentown, Pennsylvania. Here again, their unemployment rate is above the national average at 8.7 percent. It also has a high foreclosure and mortgage delinquency rates.
Third is Norwich, Connecticut at -2.5 percent. Their unemployment rate is 9.2 percent and has recently risen to this record level, so really, what we’re seeing in that part of the country is a tough economy. And, also, we see some trends where population is leaving that area, so that makes it hard to sustain demand over areas such as Florida or the west where population in increasing.
Adrienne Ainbinder: I see that according to the forecast, the worst performing markets between today and the end of this year are in the -2 or -3 percent range which you’ve indicated is typical in a healthy market. When is the last that time these “worst market profiles” looked like this?
Eric Fox: Well, we probably have to go back to probably 2005, 2006 when we had very rapid appreciation when even then, some of our worst performing markets would still be at the -2 or -3 percent levels. So, this is nothing surprising, even in a good market to have slight depreciation in some of the worst performing markets.
Adrienne Ainbinder: Obviously the forecast data doesn’t tell us this, but in your opinion, as the market improves, are we going to see the big run-ups in home prices that we did back in that previous time frame? And what’s going to keep us from seeing that reoccur?
Eric Fox: Well, it’s very interesting, and that’s a good question. Back in 2005 when prices were going up drastically, and numbers we saw back then were things like +30 and +40 percent a year, it was really the people that didn’t have money that were driving prices up.
So, for example, someone who was buying a $100,000 home didn’t have any money down. The house appraised for $95,000. The banks would either inflate the appraisal so they could do the loan or suddenly that $5,000 would appear at closing, and they would do a 105 percent loan to value loan to get that buyer in, so it was really people that had no skin in the game that were causing prices to go up. Now, that’s very different. What we’re seeing is it’s with people that have the money that are driving up prices, so when somebody tries to get a house, the appraisal is tied to the value.
So, we looked for a closed sale that’s very recent that supports the value of the house that the buyer is currently making an offer on. If it doesn’t support the value, then the buyer has to come up with cash at closing because they’re not going to close otherwise, or the seller has to reduce their price. And what we’re finding now is that buyers in those markets where supply is tight are saying, “Okay, well, we’re paying half cash anyway, so we’ll add an extra $10 or $15,000 to our offer to get this house,” and that’s what’s causing prices to go up.
So, in this latter scenario, I think we’re going to start to see things like 10 percent or 12 percent, maybe even 15 percent, appreciation for some of our top performing markets, and we aren’t going to see some of the silly numbers like 40 or 50 percent like we did in the first scenario.
Adrienne Ainbinder: Interesting. Well, thanks for sharing that. It’s always a pleasure to have you here, and we’re happy to help you share some good news about the market this time around. For our listeners, additional information including the latest VeroFORECAST results and the top and bottom five markets can be found in our newsroom at veros.com. Please, follow, also, our twitter handle at @verosres for other breaking news. Questions and feedback can also be submitted to firstname.lastname@example.org. Thanks for listening.