Future losses in housing are on the horizon as home sale trends indicate they cannot support a moderating recovery, according to data and real estate asset valuator Clear Capital.
Clear Capital’s latest monthly home price index with data through November 2014 indicates that moderation continues for the 11th consecutive month, while national home price gains fell to 6.7% year-over-year and 1% quarter-over-quarter.
There has been a general lack of demand in the performing-only segment, coupled with a dwindling supply of distressed inventory, data show. Performing-only sales dropped five percentage points from a high of 11.7% in December 2013.
“Performing-only sale trends are a bellwether for what’s to come in 2015,” says Dr. Alex Villacorta, vice president of research and analytics at Clear Capital, in a statement.
Excluding distressed sales, performing-only national home price growth over the last year was 4.4%, down from a recovery high of 7.2%. Also raising concern is the performing-only segment’s drop in quarterly growth to .6%, nearly cut in half over the last rolling quarter which saw quarterly rates of growth at 1.1%, researchers note.
“Think of home price growth since the housing collapse as a bouncing ball, where each successive bounce causes some energy to be lost and eventually movement stalls,” Villacorta says. “We see this on a few different levels. First, we see the delta between performing only and all sales, including distressed sales, merging. This confirms markets are no longer driven as much by investor demand for discounted distressed assets.”
Distressed saturation fell to 16.8%, suggesting the shortage of lower priced inventory is the catalyst for stalling gains, Clear Capital says, adding that national trends were also seen at the regional level, with the West seeing the strongest moderation across the country.
“In fact, for the first time since the start of the recovery three years ago, the West’s yearly rates of growth fell below 10%, a sure sign of more moderation to come over the next several months for the nation,” Clear Capital says.
Now the all sale segment is outperforming the performing-only sale segment by 3 percentage points, data show. During the height of the recovery in 2013, national prices including distressed sales outperformed the performing-only sale segment of the market by 4.2 percentage points.
“These segments’ rates of growth will likely continue to fall in line with each other as investor engagement dwindles—a result of fewer distressed sale opportunities,” Clear Capital says. “As this occurs, markets will be more reliant on performing-only sale demand and price growth.”
The general lack of demand in the performing-only segment, along with other factors, means much of the future of home prices will be driven by traditional home buyers, many of whom show little interest in re-engaging the market at this time.
Notable weakness in the performing-only sale segment is a sign that non investor buyers are not engaged enough to support the recovery, Villacorta says.
“As markets continue to normalize, we’ll see reduced growth from the distressed segment, which is a good thing for the market overall as the legacy of the housing crisis fades in the rear-view,” Villacorta says. “Yet, should national rates of growth turn to losses as a result, non investor homebuyers will likely further disengage. Quarterly losses could snowball into yearly losses, and create a negative feedback loop. At this point, the market showing signs of weakness is a cause for concern.”
Access Clear Capital’s latest market report here.
Written by Cassandra Dowell