National Appreciation Prediction Improves
Jul 18, 2013
Featuring Eric Fox, Vice President Statistical Modeling, Analysis & Research
Monthly Podcast Transcript - Duration: 8 minutes
Adrienne Ainbinder, Moderator: Welcome to Veros Real Estate Solution’s monthly podcast. We have Eric Fox back to talk about the latest VeroFORECAST housing market update. Eric, of course, is Veros’ Vice President of Statistical and Economic Modeling and our expert economist behind the highly accurate VeroFORECAST. Welcome back, Eric.
Eric Fox: Well thank you Adrienne it’s good to be back and I think this time we have some good news with the appreciation trend accelerating with our forecasts.
Adrienne Ainbinder: Well, I’m always happy when our conversations can center on good news. And it looks like this quarter’s focus is a lot of good news for the US, so tell me what you are seeing?
Eric Fox: Well from the overall national level, definitely good news. This is really the fourth quarter in a row now where the index, our forecasting index, has shown forecast appreciation. So now 90 percent of our markets are forecasts to appreciate and about ten percent are forecast to depreciate in the upcoming 12 months. And even the depreciating markets are very minor depreciation with numbers like minus one or minus two percent, so overall, very good news.
Adrienne Ainbinder: That’s great. I know last quarter we started talking about a noticeable rebound in California and when I look at the top five markets this quarter, it looks like we’re moving deeper into that trend, is that right?
Eric Fox: Yeah, that’s definitely true. California actually occupies our top three spots this time, San Francisco is surging ahead with a forecast appreciation of 12.7 percent, Los Angeles at 11.6 percent and San Jose and 11.1 percent. And really, all of these markets are going up for very similar reasons, supply is down significantly from the peak back in 2007, 2008. And when I say significantly, I mean numbers like 70 or 80 percent. The unemployment rates are coming down in many of these areas and with the affordability levels back to what they were nine, ten years ago, that’s really adding fuel to the fire for these markets in California.
Adrienne Ainbinder: What about the rest of the country? What other markets is VeroFORECAST expected to appreciate in the next year?
Eric Fox: Well, 90 percent, we expect to appreciate but the top five, rounding out the top five Midland, Texas is also at 11.1 percent and Phoenix, Arizona at 10.9 percent. Now Midland is a little bit different story, it’s a more rural metropolitan area. Their unemployment rate is extremely low at 3.2 percent and they have a booming economy primarily due to the oil sector. So that’s really fueling, no pun intended, the price increases there. With Phoenix, it’s also very similar to California with drastic where you reduce supplies from the peak, supply is extremely low, and with low interest rates and affordability, demand has been very high. So that has been keeping prices moving up.
Adrienne Ainbinder: Very good. It’s great to see that that depreciating slice of the pie is ten percent. I know when we talked last time it was looking at 25 – like 25 percent. So delving into that that group of depreciating markets, can you tell us a little more specifically, what’s happening in – maybe the bottom five for the coming year?
Eric Fox: Yes, sure. So we have far fewer depreciating markets forecast now. And as I mentioned earlier, everything is very minor depreciation. So if we look at our bottom five, it’s Poughkeepsie, New York at minus 2.9 percent is the worst expected performing market, Kingston, New York at minus 2.1 percent, Norwich, New London, Connecticut at minus 1.9 percent, Bridgeport, Connecticut at minus 1.8 percent and Atlantic City, New Jersey, at minus 1.6. I think a common theme among a lot these markets is the high and employment rate. We are seeing unemployment rates that are one or two percent higher than the national average in many of these metropolitan areas. Interestingly also, this time we’re seen these markets are appearing at the bottom for population trends. A lot of these areas are not growing in this part of the country as rapidly as, for example, the West. So when these – when folks are moving out of this part of the country or the populations relatively flat or increasing very slowly the demands just can’t be there like it would be say in a California so that’s also feeding some of these low numbers.
Adrienne Ainbinder: Interesting. So we’ve been talking about VeroFORECASTs for the next 12 months in June 2013 to June 2014, but can you maybe offer us a glimpse of what you are seeing beyond that horizon may be in the two-year pre-review?
Eric Fox: Well that’s a good question, Adrienne because not only do – does the VeroFORECASTs – do one-year forecasts. We also do two years forecast and we have noticed an interesting trend when we look at months 13 to 24 in our forecast is that it is not as strong as months 1 to 12. So in other words, we’re starting to see the first signs a year in the future that the rapid increase in prices are going to slow down just a little bit in many parts of the country. However, we’re not forecasting to see dramatic slowing simply just some moderation.
Adrienne Ainbinder: Interesting. Now what about within certain buyers segments are there any particular groups of buyers that you’re noticing any new trends with?
Eric Fox: Yeah, definitely. This quarter we’ve started to see move-up buyers accelerating purchases and I think part of the reason is that there’s been a little bit of complacency by the move-up buyers and by move-up buyers, I mean buyers who are selling in the same market as they’re buying a new house in. And in many parts of the country, we have a seller’s market now, so if your move-up buyer, you’re going to get a great deal on this house your selling and you’re going to get a horrible deal because there’s going to be lots of competition at the house that you are purchasing. So there’s never really a good or a bad time if you’re a move-up buyer, so I think with the move-up buyers in the past, they’ve been saying, well interest rates have been flat, it’s slightly falling, so there’s really no urgency for us to move. However, as you’ve probably noticed very recently, the long-term interest rates have shot up quite dramatically from, in many cases, three percent to now four or four and a half percent, depending on what type of mortgage you get. So I think the move-up buyers are saying if we’re going to move we better get off the fence and buy and so that’s what we’re seeing right now.
Adrienne Ainbinder: Interesting. Well I have one last question for you. With everything that we’re seeing any news – you’re seen a lot – I’m starting to see a lot talk about whether there’s another bubble coming in, with everything that you’ve talked about with interest rates in market movements and so on. Are we just great in another bubble?
Eric Fox: I don’t think so. At least not right now. And really, the fundamentals are very different. If you look at the kinds of deals that are closing now for properties, a lot of them are all cash deals or they are where the bank’s lending as very small percentage on the property, like 50 percent. So if the market does in the future crash or going down significantly, the folks that owned those properties simply own a less valuable asset. There’s no mortgage to default on or no things like we had with mortgages in the past. So I think the bubble is very over hyped at least at this point.
Adrienne Ainbinder: Interesting. Well I always appreciate that the peak into the crystal ball, so to speak that you’re able to offer us through VeroFORECASTs and of course, I always appreciate your time.
Eric Fox: All right, thank you, Adrienne.
Adrienne Ainbinder: For our listeners, additional information, including the latest VeroFORECASTs results in a top and bottom five markets can be found in our newsroom at Veros.com. Feel free up all of or twitter handle as well, at @verosRES for other breaking news. Thanks, and we'll talk to you next time.