How Is The Market Really Doing?

Veros Real Estate Solutions (Veros), an award-winning industry leader in enterprise risk management, collateral valuation services, and predictive analytics, has released its second quarter 2018 VeroFORECAST, which predicts that over the next 12 months residential market values will appreciate at a national average of +4.4%, a slightly higher rate than predicted in the previous report.

Each quarter Veros releases a new VeroFORECAST report, developed by projecting the impact of various key predictors on real estate values at four future time horizons: 6, 12, 18 and 24 months. The report released today, which covers the 12 months from June 1, 2018 through June 1, 2019, integrates data from 1,005 counties, 354 metropolitan statistical areas (MSAs), and 13,877 zip codes that cover 82% of the U.S. population.

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“Washington State and Nevada occupy six of the ten highest-appreciating MSAs in the U.S. and the remaining four are in California, Oregon and Idaho,” said Eric Fox, VP of Statistical and Economic Modeling at Veros. “This is the 24th quarter in a row where this index has forecast overall appreciation. Interestingly, the metro markets that are projected to appreciate the most over the next 12 months in this VeroFORECAST release are also among the most populated, while the markets that are expected to depreciate most are all among the least populated. For example, the average population of the top 25 metros is 1.7 million and the average population of the bottom 25 metros is 318,000.”

The new report reconfirms what has been experienced over the last several years: high demand for housing and historically low housing supply remain the key determinants of where any given market is expected to be on the appreciation-depreciation spectrum.

There is also a geographical component to real estate appreciation predictions. Not only are the projected top ten trending U.S. markets, as determined in the current VeroFORECAST, concentrated in the West, but the ten that are predicted to depreciate slightly or remain the same, are in the East and South.

For the 12 months beginning June 1, 2018, Veros predicts all ten of the highest-appreciating MSAs and 21 of the top 25 markets will be in seven contiguous far west states, from Washington and Idaho in the north, down through Oregon and California, and east to Nevada, Utah and Colorado.

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“There are several factors driving up home prices in the Seattle area, including a thriving economy and a lack of buildable land,” said Economist Matthew Gardner, with Seattle-based Windermere Real Estate. “There is also growing demand for housing thanks to the substantial in-migration of technology workers from the Bay Area who are relocating to Seattle because of the robust job market and relatively inexpensive home prices when compared to those in San Francisco,” Gardner concluded.

Despite migration to Seattle from California’s Bay Area and Silicon Valley, the San Jose market is one of the top five markets for appreciation this quarter, ranked fourth at +9.5 percent.

“The San Jose market remains exceedingly strong with a supply of homes at an extremely low 1.0 months, while its population is continuing to grow steadily. Its unemployment is an extremely low 2.6%. The Silicon Valley continues to attract workers for high tech jobs, and there isn’t enough housing to fill demand, making this one of the strongest markets in the country,” Fox said.

Much like San Jose, this quarter’s fourth highest appreciating market Reno-Sparks is experiencing extremely low housing inventories in conjunction with rapidly growing population.

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“For at least eight years now Reno-Sparks has been experiencing incredible growth, with an influx of companies in the technology space from California and other states,” said Craig King, TITLE, Chase International. “Tesla is currently building a 14 million-plus square foot gigafactory here, which, upon completion, is expected to be the biggest building in the world. With so many people moving into the area from higher equity regions, there is a great deal of pressure on the housing market to catch up and builders are still under building. This phenomenon has been going on for at least 5 to 6 years now and we are still 20,000 housing units behind what’s needed,” King concluded.

The supply of homes in Reno is 2.7 months and continues to fall. Combined with an unemployment rate of a low 3.8% and rapid population growth of 15%+, this is one of the forecast’s strongest markets in the country.

Nearly one-half of the bottom 25 markets are in the northeastern states of New Jersey, Connecticut, New York, Maine, Pennsylvania and Maryland, with eight others in the deep south: Louisiana, Alabama, Arkansas and Mississippi.

Among the ten MSAs projected to have the highest depreciation over the next 12 months, only three were in the previous VeroFORECAST bottom ten, and the rate of depreciation is significantly less. In the last report, Atlantic City was predicted to depreciate at nearly 3%, and it now is forecast to depreciate at -1.0%. Cumberland, Maryland-West Virginia MSA, which was not among the bottom ten MSAs in the last report, now has the worst forecast depreciation, albeit only -1.6%.

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