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October 1st, 2012 by Marco Santarelli
After nine consecutive months of appreciation, August was the first month where home values decreased by 0.1% to $152,100, according to Zillow.
2012 has seen a turnaround in the housing market with sustained appreciation that, at times, has been very strong. As we progress through the latter half of this year, we expect home values to see more volatility characterized by months of home value declines mixed with months of appreciation.
Overall, the positive trend will hold as evidenced by home values being up by 1.7% in August 2012 on a year-over-year basis. Rents continued to rise in August, appreciating by 0.2% from July to August. On an annual basis, rents across the nation are up by 5.9%, indicating that demand, fueled by elevated foreclosure levels, is still outpacing investor-driven increases in rental property supply.
The August Zillow Real Estate Market Reports, the first indication of August national home value trends anywhere, have been significantly expanded this month to cover 369 metropolitan and micropolitan areas, more markets than any other freely available source of market data.
In August, 135 (36.6%) of the 369 markets covered showed monthly home value appreciation. Among the 30 largest metros, 13 experienced monthly home value appreciation and 21 saw annual increases. The largest monthly decline among the top 30 metros took place in Atlanta, where home values fell by 1.5% from July to August. Leading the pack on the appreciation side are Phoenix, Las Vegas, and Miami-Fort Lauderdale which experienced 1.6%, 1.1% and 1.0% respectively. Overall, national home values are down 21.5% since their peak in April 2007 and up 2.3% from the post-recession trough in October of 2011.
The Zillow Rent Index (ZRI) covers 296 metropolitan areas and shows year-over-year gains for 201 metropolitan areas. Even as the housing market picks up steam, the rental market remains strong.
Markets that saw extremely strong annual rent appreciation include Indianapolis (13.7%), Chicago (12.8%), Philadelphia (10.5%), and Baltimore (12.4%). Las Vegas, which has seen extremely high levels of affordability and a flurry of investor activity over the past year, has seen home values increase steadily (up 4.9% on a year-over-year basis in August), while rents have seen lackluster growth or depreciation. Currently, rents are down 2.4% from August 2011.
The rate of homes foreclosed continued to decline in August with 6.0 out of every 10,000 homes in the country being liquidated. Nationally, foreclosure re-sales continue to fall, making up 13.8% of all sales in August. This is down 2.3% from August 2011.
We do not believe that an expected increase in foreclosure re-sales towards the end of this year will cause monthly home value trends to go negative on a consistent basis, although they will create some monthly volatility and keep a lid on near-term home value appreciation.
Nationally, the slow housing recovery continues to unfold with our forecast calling for future appreciation, albeit at a slower than “normal” pace. We expect that most markets will have reached their bottom by the end of this year and will start to show home value appreciation.
The implementation of a third round of quantitative easing by the Federal Reserve will ensure that the current low mortgage rate environment continues. While higher mortgage rates would not be particularly helpful to the developing housing recovery, we believe there isn’t room for rates to go lower and, even if there were, we don’t seem to be in a particularly rate-driven environment as home sales appear more sensitive to employment trends and local supply constraints on for-sale inventory (which itself is often a function of negative equity which prevents potential sellers from entering the market).
Of more concern is the complex budget and tax changes associated with the year-end “fiscal cliff” which is likely creating uncertainty right now with consequences for employment growth and, if not successfully navigated, will create real disruptions in the economy soon and, if the experience with last fall’s debt ceiling debate is any indication, substantial hits to consumer confidence, both of which will impact home sales, and ultimately home values.
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