One of the best measures of the housing recovery is the steady progress than is being made in markets across the country to return home values to their peak values seven or eight years ago. While sales sag despite retreating interest rates and inventories provide just enough listings to prevent last year’s price eruption, homeowners are leaving negative equity and becoming whole one market at a time.
A new analysis by CoreLogic found that markets with the highest negative equity shares are healing faster than those with the lowest negative equity shares, suggesting that location is a main driver in price recovery.
Homes.com reports that in March, more than a third, 35, of the nation’s top 100 markets have now reached full rebound status. (Their median prices match or exceed their peak prices registered at the top of the housing boom.) This choice fraternity increased by five during the month: Charlotte-Concord-Gastonia, North Carolina-South Carolina, Spokane, Washington and Madison, Wisconsin.
One-third of Markets Have Rebounded to Peak Prices
Including smaller markets, over one third of the 300 markets tracked by the Homes.com Rebound Report have now achieved full pricing recovery, bringing the total to 102 fully rebounded markets. An additional 57 percent of U.S. markets have rebounded 50 percent from their lowest price during the housing recession.
“The top 300 U.S. markets have seen average annual gains of eight percent with the lowest gains still above three percent. As tight inventory boosts prices and recent graduates struggle with student debt, we’re now seeing signs of slowing in specific regions of the country indicating a recovery may be a longer process in certain areas,” said Brock MacLean, executive vice president of Homes.com.
CoreLogic: Half of Top Markets to Reach Parity by 2018
CoreLogic reported that. from the fourth quarter of 2011 through the fourth quarter 2013, negative equity did in fact fall by 12 percentage points, from 25 percent to 13 percent. To measure future progress of the housing recovery’s impact on negative equity, CoreLogic has devised a methodology based on forecasts of his Home Price Index (HPI) and homeowners’ average equity in individual markets to calculate how rising values are making homeowners whole. It now forecasts that 62 of the largest 100 CBSAs by population will reach parity before 2018, according to a recent article by Thomas Vitlo in the CoreLogic Insights Blog.
“Projecting where house prices will be five years in the future and using this forecast to deduce negative equity declines is a daunting task, and among those of us who produce forecasts, the results are never unanimous,” wrote Vitlo, citing a Wall Street Journal survey of economists that projected 2011 was to be the first year of a slow recovery in home prices, when in fact, looking back at 2011, the CoreLogic HPI data saw a decrease of 2.9 percent.
“The point is that 2010 home price forecasts were not unanimous; still, the overall survey results did predict a rise of roughly 12 percent in the five years ending in December 2014. CoreLogic HPI data from December 2009 to March 2014 show a rise of 15.6 percent with three-quarters of the year still left to go. Nevertheless, the speed at which home prices would bounce back was not anticipated, and this speed has contributed significantly to the recovery and subsequent large drops in negative equity, which is allowing many CBSAs to hit parity sooner than without these price gains,” he wrote.
Markets with Highest Negative Equity Bouncing Back Fastest
The new CoreLogic suggests that by the end of 2018, half of the metro areas will have reached parity while the rest continue to improve beyond 2018. However, of all the CBSAs that will reach parity in 2015, 23 percent currently have between 10 percent and 15 percent negative equity share, while 24 percent of those areas have a negative equity share greater than 25 percent.
Furthermore, the analysis shows that CBSAs with the highest negative equity shares are clearing sooner than those with the lowest negative equity shares. This suggests that of the 401 CBSAs used in this analysis, a main driver of the trend toward parity is location, and the markets with the highest shares of negative equity are also areas in which prices are bouncing back much quicker. This is happening in places like Miami, Fla. and San Jose, Calif. where the housing supply remains tight, but the desirability of the location remains high.