Most Markets Still Far From Recovery Despite 11% Price Growth

Asking prices in August were up 11% year-over-year, but are still a long way from a full recovery as several factors look to slow future price growth, reports Trulia Trends

Month-over-month, asking home prices increased 1.2% in August compared to an essentially flat reading in July. But while monthly changes are volatile, Trulia also records quarter-over-quarter changes to see the trend in asking prices, as they are “less jumpy.” 

On a quarter-over-quarter basis, which Trulia notes are three month averages, August asking prices rose by 3.1%—down from 3.2% in July and a peak of 4% recorded in April. 

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If the 3.1% continued for a full year, it would mean a 13% jump in prices, according to Trulia’s estimates, however, prices are expected to slow for three reasons: rising mortgage rates, expanding inventory and declining investor demand. 

While four metros (Las Vegas, Sacramento, Oakland, Riverside-San Bernardino) have seen their asking prices jump more than 25% year-over-year, and nine more seeing price gains of 20% or more, these price rebounds hardly mean that these metro markets are back to “normal.”

“Many of these rebounding markets are still hung over from the excesses of the bubble, with lots of vacant homes thanks to overbuilding during the bubble and slow household formation since the bubble burst,” writes Trulia’s Chief Economist Jed Kolko.

A key indicator of local market recovery beyond a price rebound will be the return of construction to normal levels, Kolko added. 

Nationally, the housing recovery has not yet reached the phase when construction returns to normal levels, as permits in 2013 are just 60%-70% of the average levels seen between 1990 and 2012. 

Even in the four markets that posted the largest asking price increases, construction in 2013 is running “far below normal,” by as much as less than half the normal level. Additionally, among markets posting 20% price gains, only Orange County and San Jose were at or above normal construction levels.

Markets with the biggest price drops during the housing bust tend to have the sharpest price gains today, partly because they’ve attracted investors looking to buy at low prices. 

“Builders, however, don’t want to build where there are already bargain homes for sale,” Kolko writes. “They’re betting instead on markets that had milder housing busts, less overbuilding during the boom, and therefore lower vacancy rates today.” 

“Only when construction starts to approach normal levels will housing markets in price-boomtowns like Sacramento and Phoenix feel like they’re back on steady ground,” added Kolko.

View the Trulia Trends post.

Written by Jason Oliva

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