Clear Capital: In The Race To Recovery, Expect ‘Tortoises’ To Win

Home prices increased about 11.3% in 2013, according to Clear Capital's Home Data Index (HDI) Market Report.

Home prices increased for 10 consecutive months before dropping 0.9% in November, Clear Capital says. Although prices are expected to continue to rise through 2014, the rate of appreciation is flattening, the analyst firm reports.

However, when looking at individual metro markets, the rate of appreciation has been spotty. For example, Phoenix, which was particularly hard hit by the economic downturn, sprinted ahead with double-digit gains during 2013, whereas other markets, such as Denver, have recovered more gradually.

‘It's the classic story of the tortoise (Denver) and the hare (Phoenix),’ the firm states in its report. ‘While the race continues, expect to see new markets take the lead, as those that have come to define the recovery taper off to their long-run historical rates of growth.’

In other words, just because a metro area has seen rapid price appreciation doesn't mean the trend will necessarily continue into 2014.

Rather, Clear Capital's research shows that the recovery in some metro areas will come by way of ‘a series of sprints,’ while other areas will see a more ‘slow and steady’ recovery.

In its report, Clear Capital refers to Phoenix as a ‘hare’ market – because its housing values ‘jumped’ during 2013, but are now starting to stabilize. Denver, conversely, is considered a ‘tortoise’ market, because it has recovered more gradually. Without delving too far into the analysis, Clear Capital makes the point that markets which had ‘more ground to cover’ in order to make a full recovery are those which have, in general, seen more rapid price appreciation.

So who will win the ‘race to recovery’ in 2014? The ‘tortoises’ or the ‘hares?’

‘Looking ahead to 2014, we see many markets moving toward the slow and steady path,’ the report states. ‘As markets adjust to their recent price gains, we expect moderation to unfold. At the national level, we forecast the 11.3 percent growth in 2013 to give way to 3.4 percent growth in 2014 – a sign of calibration toward long-run historical average rates of growth.

‘In 2014, the hares should see growth of just 2.4 percent, as compared to 14.6 percent in 2013,’ the report continues. ‘As the hares slow down, the tortoises are expected to catch up, tracking nearly even at 2.6 percent growth. Phoenix should see notable moderation, with 2014 gains expected to reach just 1 percent, while we predict Denver will outperform national markets with 4.9 percent growth in 2014.’

‘As we enter the next heat of a more mature recovery, there are signs the home buyer mix may shift more toward non-investor homebuyers,’ says Alex Villacorta, vice president of research and analytics at Clear Capital. ‘Ultimately, this non-investor segment will need to get more active to truly stimulate the housing recovery in a way that will have a larger ripple effect on the broader economy. Additionally, moderation at the national level is a healthy move for the broader housing recovery as gains move back into a more sustainable, historical range. As observed over the last several years, skyrocketing gains followed by decimating declines don't benefit long-term market participants who like slow and steady gains.’Â Â Â

The firm predicts that only nine out of 50 major metro markets will see price declines in 2014 – but those declines will likely be minor and ‘could be avoided if the market holds up stronger than expected over the winter.’

‘At first blush, there are some surprises, like Seattle with expected declines of 3.1 percent,’ the report states. ‘The market's median price of $300,000 could act as a barrier to entry for many investors and traditional home buyers.’

Clear Capital forecasts that the country's 34 largest metros will see home price gains of between 0% and 5% in 2014.

‘With just seven markets slated for price growth exceeding 5% in 2014, it may seem opportunity is scarce,’ Villacorta says. ‘There will be, however, subsets of these metro markets where gains are still plentiful.’

To read the full report, click here.


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