A slowdown in sales of distressed properties could pull the growth of the overall housing market down, a Clear Capital analysis has found.
The Clear Capital
Home Data Index (HDI) from August, which measures closing sales transactions, showed a drop in sales of distressed properties and a drop in home prices. The index measured yearly growth at 8.4 percent in July, down from 9 percent in
After the recession, large investors and corporations, like Blackstone and American Homes 4 Rent, were scooping up discounted distressed properties by the thousands to turn into single-family rentals. The industry got so big they created the new
rent-backed securities asset class. According to June data from CoreLogic, foreclosures in the U.S. dipped 3.9 percent from May to a total of 648,000. June was the 32nd straight month where the number of foreclosures dropped.
Clear Capital Vice President of Research and Analytics, Alex Villacorta, said that the supply of distressed homes is slowing, as is the desire to invest in them. That slowdown in investment is like a receding tide, which will leave behind inventory for consumers who may feel insecure about investing in a home,
or who make lack the capital or credit worthiness to get a mortgage.
Sales of distressed properties were 18 percent of all home sales in July, according to Clear Capital, down from a high of 41 percent in March 2011, indicating a much tighter inventory.
As a result, Clear Capital is forecasting that U.S. average home prices will increase just 1.5 percent through 2015, below the historical average of between 3 and 5 percent.
“[Growth of] 1.5 percent is not necessarily alarming, but it is at least concerning that the housing market is basically stagnant,” Villacorta told Scotsman Guide News. “There’s just enough supply and demand to keep prices from declining, but not enough to
see appreciation grow.
“With other prices that are appreciating — like gasoline — a home that isn’t appreciating may turn off some of the broader demand base as not a good investment.”
Watch the Midwest
A regional housing market to watch for growth, Villacorta said, is the Midwest. The region did not suffer the same as others after the recession; it suffered because of job losses caused by the financial collapse, not just the collapse of the housing market.
If gains in employment continue at pace, the housing market in the Midwest might recover more steadily than in other areas.
Clear Capital predicts growth of 3.4 percent in the Midwest.
“Places like Detroit are nowhere near out of the woods yet; the losses in the housing market they’ve seen is remarkable,” Villacorta said. “But the upside of that is there’s a lot of potential for a comeback.”
The canaries Phoenix
Clear Capital is watching the cities Phoenix and Riverside, California, very closely. The two cities lost a lot during the housing crash, but also recovered quickly and strongly. Now, that growth is starting to stumble.
Phoenix is suffering from a slowdown in distressed property investment, with its level of distressed properties at 13.5 percent, down from more than 60 percent in March 2011.
Similarly, Riverside’s distressed inventory is down to 15.5 percent. In July, Riverside was growing at an annual rate of 18.3 percent — but it began the year growing at 25 percent.
“If those two markets turn negative, that’ll be the first canary in the coal mine that things are not as stable as we hoped they would be,” Villacorta said.
Villacorta said that the macro picture might look tepid, but markets vary greatly even from neighborhood to neighborhood.
“It really takes the granular view to make a good investment, a purchase, or a lending decision,” he said. “The real story has to be sourced from the granular data.”