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Asking Home Prices Set New Records While Rents Ease as Supply Expands

by Jed Kolko

trulia-price-monitor-trulia-rent-monitor-jed-kolko-asking-prices-real-estate-home-prices-2012-september

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.

Asking Prices Rise a Record 0.9 Percent Month-over-Month Nationally

In January, asking prices rose 0.9 percent month-over-month, seasonally adjusted — the highest monthly gain since the price recovery began. Year-over-year, asking prices rose 5.9 percent; excluding foreclosures, asking prices rose 6.5 percent. Quarter-over-quarter prices rose 2.2 percent, seasonally adjusted. Prices typically fall in the wintertime, but asking prices still rose slightly (0.3 percent) quarter-over-quarter even without seasonal adjustment, indicating the strength of the price recovery. Asking prices were up year-over-year in 86 of the 100 largest metros.

Although most of the housing markets with big price gains exhibit unhealthy fundamentals, some markets with rising prices are healthy. Furthermore, modest price increases aren’t necessarily a sign of poor health: markets with flat or falling prices include both healthy and unhealthy markets. Looking at both price gains and market health reveals four types of local housing markets:

  • Booming markets have big price increases and healthy market fundamentals. Their price gains are supported by strong job growth, and future foreclosures are unlikely to threaten today’s price increases. San Francisco, Seattle, Denver, San Jose and Salt Lake City are the best examples of booming markets.
  • Rebounding markets also have big price increases, but with weaker market fundamentals. They had big price declines during the housing bust, and bargains have attracted investor interest, which has helped boost prices. These roller-coaster markets won’t sustain the price gains they’re seeing now because investors will look elsewhere – and eventually sell – when no bargains are left to be found. Rebounding markets include Phoenix, Las Vegas, Riverside-San Bernardino and Detroit.
  • Humming markets have strong market fundamentals without dramatic price gains. They’re humming along after avoiding the worst of the housing bubble and bust. Moreover, many are now seeing lots of construction activity. Houston, Boston, Raleigh and Dallas are good examples of humming markets.
  • Struggling markets don’t have either strong market fundamentals or big price gains. Even though the rebounding markets suffered more during the housing bust, these struggling markets haven’t benefitted much from the housing recovery. Struggling markets include Newark, Chicago and Albuquerque.

Rent Gains Ease As Rental Supply Expands

Nationally, rents rose 4.1 percent year-over-year, falling behind the year-over-year national asking-price gain for the first time since the price recovery began. Just six months ago, in July 2012, the year-over-year increase in rents nationally was 4.7 percent.

Rent gains have slowed because of more supply, not less demand. Rental demand remains strong, and the homeownership rate remains at its lowest level in many years. But supply is expanding as more new multi-unit buildings, many of which are rental buildings, have come onto the market. The number of completed units in multi-unit buildings was up 23 percent in the second half of 2012, year-over-year.

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