Home-price increases may not last
7 of the 10 major metros that showed the greatest increase in asking prices in the past year have a high rate of foreclosures still in the pipeline.
The most recent spate of statistics has painted a cheery picture for a number of cities, including some of those that fell furthest during the bust, such as Phoenix and Miami.
But the good news isn't as good as it looks for some of the "turnaround towns," says Trulia chief economist Jed Kolko, who looked at both price data and homes in foreclosure. What he found was a tale of two kinds of cities: cities that are emerging from the muck because the fundamentals are improving and cities where prices have risen because of investor interest but that aren't really out of the woods yet.
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First, the happy news: Of the 10 markets where homes showed the greatest increase in asking prices in the past year, three are "in the clear." Those are Denver; San Jose, Calif.; and Pittsburgh. Coming up behind them are Little Rock, Ark.; Austin, Texas; and Colorado Springs, Colo.
All those cities saw price increase of 4% or more year over year and have fewer homes in foreclosure than the national average, which is one in 100. "Because their price gains aren’t threatened by a future local foreclosure wave, we’re calling these markets 'in the clear,'" Kolko wrote at the Trulia Trends blog.
In the "news isn't as good as it looks category," are seven of the 10 cities that saw the largest increase in asking prices year over year: Phoenix; Miami; Cape Coral-Fort Myers, West Palm Beach and Orlando, Fla.; Warren-Troy-Farmington Hills, Mich.; and Detroit.
"The huge price gains we’ve seen in Miami and Phoenix are not built to last," Kolko said in a news release. "These increases will shrink or reverse as the backlogged foreclosures in these metros hit the market." The percentage in the foreclosure process is 2.55 in Phoenix, more than twice the national average, and 3.37 in Miami, more than three times the national average
One key factor, he says, is why prices are rising. In the "at risk" metros, prices are rising because they got so low they are attracting investors and international buyers. The "in the clear" metros are seeing prices rise because of job growth, Kolko wrote.
Of the 100 major metros analyzed by Trulia, 44 showed price increases year over year, but 15 of those have a high percentage of homes in foreclosure, putting those price increases at risk. The "at risk" markets suffered bigger price drops after the boom, have had slower job growth in the past year and are issuing fewer residential building permits.
Of the 56 markets where prices did not increase, most have few homes in foreclosure. But in some cities, prices are falling and there are a high number of homes in foreclosure. Among those bad news-bad news cities are Chicago, Atlanta and Sacramento, Calif.
Will somebody please explain to me why high prices are good for houses? Good for (upside-down) sellers and banks, maybe, but not so great for the rest of us. Keeping entry-level houses out of the reach of first time homebuyers doesn't form a good foundation for the housing market.
I've been waiting out this inflated market for a decade - and I'm a person who has the income and savings to buy a home ... but not a half-million dollar starter home. Who can do that these days? Or could do that ever?
Prior to 2000, you could buy a home in most parts of Southern California for under $500K. Now you have to spend that, minimum, if you want to live in any neighborhood that seems remotely safe or desirable. Why do people who bought before 2000, or people who were foolish enough to buy at peak housing boom prices get to gouge the next generation of homebuyers?
I think the research here misses one important point, which is 'how does the cost of renting compare to the cost of ownership in these areas?'
What I see happening is perfectly logical, once people lose their homes to foreclosure, they become renters. As demand for rent goes up, so do the prices. So, rent has been going up, and home prices have been going down. At some point (which I think has been reached in many locations) the cost to buy will be very close to the cost to rent, thus swinging the pendulum in the other direction.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.