Home Prices Boom 10 Years After Housing Crisis

New report reveals surprising data as prices return to bubble levels

Santa Clara, CA – November 13, 2017 (PRNewswire) Home prices have returned to the boom levels of a decade ago — which foreshadowed the bursting of the real estate “bubble” and the onset of The Great Recession — but today’s housing market is starkly different, according to data released today from realtor.com®, a leading online real estate destination. Backed by tighter lending standards and more solid economic fundamentals, current price appreciation is being driven by strong supply-and-demand dynamics with no signs of boom era flipping or over-construction.

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On the surface, today’s housing market looks suspiciously similar to the pre-recession years with rising home prices and feverish buyer demand. However, a deeper analytical assessment reveals material differences — historically low inventory levels, much tighter lending standards and significant job and household growth — and a strong housing market backed by economic fundamentals.

Home Prices are Soaring
The U.S. median home sales price in 2016 was $236,000, 2 percent higher than in 2006.1 In fact, 31 of the 50 largest U.S. metros are back to pre-recession price levels. Austin, Texas, has seen the largest price growth in the last decade with a 63 percent increase.(1) It’s followed by Denver, at 54 percent and Dallas at 52 percent. Three markets — Las Vegas, Tucson, Ariz., and Riverside, Calif., — remained more than 20 percent below 2006 price levels at the end of 2016, at 25 percent, 22 percent and 22 percent, respectively.1 Additionally, realtor.com® national data shows that listing prices have been up double-digits for the majority of 2017.

“As we compare today’s market dynamics to those of a decade ago, it’s important to remember rising prices didn’t cause the housing crash,” said Danielle Hale, chief economist for realtor.com®. “It was rising prices stoked by subprime and low documentation mortgages, as well as people looking for short term gains — versus today’s truer market vitality — that created the environment for the crash.”

Lending Standards are Tight
The largest difference in the last decade is that lending standards are the tightest they have been in almost 20 years. Today, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires loan originators to show verified documentation that a borrower is able to repay the loan. As a result, the median 2017 home loan FICO score was 734, significantly up from 700 in 2006, on a scale of 330 – 830.(2)

The bottom 10 percent of borrowers also have much higher credit scores with a FICO of 649 in 2017, from 602 in 2006.2 While veterans and others with specialized mortgages can still put zero percent down, these mortgages include additional restrictions to ensure they can be paid back.

“Lending standards are critical to the health of the market,” added Hale. “Unlike today, the boom’s under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products, which pushed up home prices without the backing of income and equity.”

Flipping and Over-Building Are in Check
A decade ago, the widespread belief that prices could never go down spurred rampant home flipping and building. Today, tight lending standards have kept flipping and over-building in check, but are contributing to severely constrained construction levels.

Prior to the crash, flipping became increasingly mainstream with amateur flippers taking on multiple loans. In 2006, the share of flipped homes reached 8.6 percent of all sales, exceeding 20 percent in some metros such as Washington, D.C. and Chicago.(3) With today’s tight lending environment limiting borrowing power, flipping accounted for 5 percent of sales in 2016, a more restrained level.(3)

Over-building was another indicator of the unhealthy market conditions in the early 2000s. As prices rose, builders kept building, regardless of demand. In 2006, there were 1.4 single-family housing starts for every household formed, well above the healthy level of one necessary to keep up with the market.4 Today’s market is well below normal construction levels at only 0.7 single-family household starts per household formation.4 While the lack of over-building is generally positive for the market, the current environment of under-building is having a material impact on supply and escalating prices.

Today’s Home Prices Driven by Economic Fundamentals
Strong employment and demand paired with severely limited supply is driving price escalation today. Employment was also strong in 2006, but years of over-building put an oversupply drag on the market.

In October 2017, unemployment is now at 4.1 percent — a 17-year low, with more than 150,000 jobs created on average each month in 2017.(5) In 30 of the 50 largest U.S. metros, unemployment is less than half of 2010 levels.5 In 2016, there were 8 million more workers on payrolls than in 2006 and 10 million more households.(5) At the same time, there are 600,000 fewer total housing starts and nearly 700,000 fewer single-family housing starts.(4)

Hale added, “The healthy economy is creating more jobs and households, but not giving these people enough places to live. Rapid price increases will not last forever. We expect a gradual tapering as buyers are priced out of the market – not a market correction, but an easing of demand and price growth as renting or adding roommates becomes a more affordable alternative.”

Millennial job growth has also contributed to rising demand. In September, employment reached 79 percent in the 25-34 age group, back up to 2006 levels and 5 percent higher than 2010. In fact, millennials made up 52 percent of home shoppers this past spring and with the largest cohort of millennials expected to turn 30 in 2020, their demand for homes is only expected to increase.

On top of escalating demand, the supply of homes available also is significantly constrained. In 2016, single-family inventory reached a 22-year historic low at 1.45 million homes for sale.(6) October 2017 marked the 26th consecutive month of year-over-year declines in realtor.com inventory. The market is currently averaging 4.2 months supply, which is significantly faster than 2007’s 6.4 months supply.(6) Vacancies also are very tight with for-sale vacancies dropping to 1.3 million in 2016, compared to 1.9 million in 2006. Rental vacancies hit 3.2 million in 2016, compared to 3.7 in 2006.(7)

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Largest 50 Markets Price Appreciation Since 2006

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About realtor.com®
Realtor.com® is the trusted resource for home buyers, sellers and dreamers, offering the most comprehensive source of for-sale properties, among competing national sites, and the information, tools and professional expertise to help people move confidently through every step of their home journey. It pioneered the world of digital real estate 20 years ago, and today helps make all things home simple, efficient and enjoyable. Realtor.com® is operated by News Corp [NASDAQ: NWS, NWSA] [ASX: NWS, NWSLV] subsidiary Move, Inc. under a perpetual license from the National Association of REALTORS®. For more information, visit realtor.com®.

(1) Single-family home price sales – NAR/Moody’s Analytics Estimates
(2) Urban Institute
(3) Corelogic
(4) U.S. Census Bureau – Moody’s Analytics Estimates
(5) Bureau of Labor Statistics
(6) National Association of Realtors
(7) Census, Housing Vacancy Survey

Media Contact:
Realtor.com®
Lexie Puckett Holbert
lexie.puckett@move.com

Redfin New Construction Report: Under Building of New Homes and High Construction Costs Are Perpetuating Housing Shortage

Redfin releases new datasets on new construction prices, sales, inventory and building permits for metros and counties across the U.S.

Seattle, WA – October 25, 2017 (BUSINESS WIRE) (NASDAQ: RDFN) The average price of a new construction home that sold from July through September was $374,000, according to a new quarterly analysis on the new construction market from Redfin (www.redfin.com), the next-generation real estate brokerage. Redfin found new construction homes sold at an average premium of $87,000 in the third quarter compared to existing homes. New home prices were up 3.3 percent year-over-year compared to existing home prices, which grew by 7.9 percent in September.

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In conjunction with the release of its inaugural quarterly report on new residential construction, Redfin is making monthly data on new home prices, sales and inventory, as well as building permit data from the U.S. Census, available on its Data Center. The downloadable datasets are available at the national, metro and county levels, going back to 2012, and will enable consumers, researchers and the media to study the new construction market, analyze average construction costs and compare the number of units built per capita across regions. Redfin will update the Data Center and report on new construction trends on a quarterly basis.

The Redfin analysis found new homes represent a growing share of the market over the past five years—rising from one in 13 homes for sale in September 2012 to one in eight homes in September 2017. However, housing starts—the number of new residential homes that have begun construction—are still 22 percent below their long-term average.

Single-family building permits, which offer a look at the new home pipeline, were up 9.7 percent year-to-date through September compared to last year. More than three-quarters of the nearly 100 metro areas Redfin tracks had positive growth in the first eight months of the year in single-family permits compared to last year. New permits for multi-family units (buildings of five or more units, including both apartment and condo developments) were down 3.6 percent year to date.

“After almost a decade of underproduction, we are finally seeing a slow, steady increase in single-family housing starts, up 9 percent from a year ago,” said Redfin chief economist Nela Richardson. “But high building costs are limiting the construction of homes that today’s buyers can afford. This is why even in the midst of extreme inventory shortages for existing homes, new homes are sitting on the market instead of selling.”

The national average cost to a builder constructing a new home—which includes the estimated cost of labor plus materials—was $240,000 for single-family units in August this year, which is the highest since the Census began reporting this in 1988.

Construction costs are rising in part because the availability of construction workers is still 25 percent below the peak in 2006 and there is also less competition among homebuilders. Housing material costs have also been rising, with lumber prices recently hitting their highest level on record since January 2003.

“We would love to build more affordable starter homes, but when high-end homes cost the same to build and are far more profitable, we lose the incentive to build smaller units,” said Isaac Stocks of Azure Northwest Homes, a Seattle-area home builder.

Metro-Level Highlights for New Construction in the Third Quarter:

  • Nashville, TN had the highest portion of new home sales over the last three months, with 24 percent of all homes sold being new construction. Raleigh, NC and Austin, TX each followed closely behind at 23.2 percent and 18.9 percent, respectively.
  • The four metro areas with the lowest shares of new construction sales were all in New York and New Jersey led by Buffalo, NY at just 0.8 percent of home sales followed by Camden, NJ (1.5%), Hudson Valley, NY (1.6%) and Rochester, NY (1.6%). Six of the following seven lowest-ranked metro areas were in California—each with under one in 40 home sales being new construction.
  • The metro areas with the highest year-over-year price growth per square foot for new construction sales last quarter were Birmingham, AL (21.9%), Hudson Valley, NY (21.0%) and Long Island, NY (17.4%). The California Bay Area metros of San Francisco and San Jose each posted negative price growth per square foot for new construction homes—falling 6.2 percent and 4.2 percent year-over-year.
  • The estimated cost of constructing a new unit during the months of June, July and August this year was the highest in Long Island, NY at an average of $451,000 per home. Honolulu, HI ($451,000), Tucson, AZ ($272,000), and San Francisco ($269,000) rounded out the top four for average cost per unit permitted.
  • Austin, TX, Raleigh, NC and Nashville, TN are building the most homes per capita at 29, 28 and 27 units per 10,000 residents, respectively. In contrast, Allentown, PA and Long Island, NY had far fewer new homes in the pipeline at only 0.5 and 1.1 units permitted per ten thousand residents respectively.
  • A look at the total volume of building permits reveals that the metro areas poised to build the most new homes in the coming months are Houston, TX (10,000), Dallas, TX (9,400), Phoenix, AZ (7,800), and Atlanta, GA (7,700).
  • Those with the largest year-over-year increase in units permitted include Oakland, CA (142%), Riverside-San Bernardino, CA (96.7%) and Tacoma, WA (76.9%).

To read the full report, complete with data visualizations and downloadable datasets click here.

About Redfin

Redfin (www.redfin.com) is the next-generation real estate brokerage, combining its own full-service agents with modern technology to redefine real estate in the consumer’s favor. Founded by software engineers, Redfin has the country’s #1 brokerage website and offers a host of online tools to consumers, including the Redfin Estimate, the automated home-value estimate with the industry’s lowest published error rate for listed homes. Homebuyers and sellers enjoy a full-service, technology-powered experience from Redfin real estate agents, while saving thousands in commissions. Redfin serves more than 80 major metro areas across the U.S. The company has closed more than $50 billion in home sales.

Contacts

Redfin Journalist Services:
Alina Ptaszynski
(206) 588-6863
press@redfin.com

For Least Valuable U.S. Homes, Housing Crisis Recovery Lagging

Homes in the bottom third of the market lost 30 percent of their value during the housing bust and have yet to regain it

– National home values rose 6.9 percent from August 2016, to a Zillow Home Value Index (ZHVI) of $201,900. Home values in Seattle, Tampa, Fla. and San Jose saw the strongest appreciation.

– Rents across the country are up 1.9 percent year-over-year, to a Zillow Rent Index (ZRI) of $1,430 per month, with rent in Sacramento, Calif. and Seattle appreciating the most.

– The top and bottom thirds of the market in Detroit have seen the most uneven recovery in terms of homes regaining the value lost following the housing crisis.

Seattle, WA – Sept. 21, 2017 (PRNewswire) Median home values are reaching new peaks in more than half of the nation’s largest housing markets, but a closer look at which homes are regaining value reveals an uneven recovery in the biggest markets.

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More than 50 percent of U.S. homes have reached or surpassed the value they reached during the housing boom period, according to the August Zillow® Real Estate Market Report(i), but the types of homes that are recovering are not the same, particularly in the most populated places. In 24 of the nation’s largest 35 markets, the homes in the bottom third of the market are least likely to have recovered the value lost when the housing bubble burst.

Detroit has seen one of the least balanced recoveries following the Great Recession. Nearly two-thirds of the most expensive homes in Detroit have regained the value lost when the market collapsed. The typical top-tier home value in Detroit is $284,800, higher than it was during the housing bubble. In comparison, homes in the bottom third have only regained 33.7 percent of their lost value, and are now worth a median of $53,000. Only 10.6 percent of these homes have fully returned to their peak values.

As homes are often the most expensive asset someone owns, the recovery contributes to the growing wealth gap across the country. Household incomes show a similar pattern of inequality, according to newly released Census data(ii). The median household income across the United States increased in 2016, but those in the top 20 percent of earners took home more than half of the overall income.

“The housing market as a whole is moving at a steady clip, with high demand and low inventory combining to maintain strong home value appreciation,” said Zillow Chief Economist Dr. Svenja Gudell. “Most new construction has been at the higher end of the market, so demand for the limited supply of entry-level homes is pushing up their values, but these homes also lost more value when the bubble burst. Many of these homeowners are still waiting to see their homes come back to where they were about 10 years ago. Even as headline numbers show an overall recovery, there are still thousands of Americans struggling to bounce back from the housing bust.”

The median home value in the U.S. rose 6.9 percent over the last year to a Zillow Home Value Index(iii) of $201,900. Seattle is the only major U.S. market where home values rose at a double-digit annual pace, up 12.4 percent since last August to a median home value of $453,100. Tampa home values rose 9.3 percent, and the median home is worth $187,400.

Annual rent appreciation grew for the fourth consecutive month, with rents increasing 1.9 percent from last August to a Zillow Rent Index(iv) of $1,430.

Limited inventory leaves few options for buyers. Nationally there were 12.6 percent fewer homes available in August 2017 than there were in August 2016. San Jose and San Diego saw the biggest annual declines in inventory, down 59.4 percent and 37.2 percent respectively.

Mortgage rates(v) on Zillow ended August at 3.62 percent, near the lowest level of the month. Rates moved steadily lower throughout the month after starting at a high of 3.72 percent(vi). Zillow’s real-time mortgage rates are based on thousands of custom mortgage quotes submitted daily to anonymous borrowers on the Zillow Mortgages site and reflect the most recent changes in the market.

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Zillow

Zillow® is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ: Z and ZG), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

(i) The Zillow Real Estate Market Reports are a monthly overview of the national and local real estate markets. The reports are compiled by Zillow Real Estate Research. For more information, visit www.zillow.com/research/. The data in Zillow’s Real Estate Market Reports are aggregated from public sources by a number of data providers for 928 metropolitan and micropolitan areas dating back to 1996. Mortgage and home loan data are typically recorded in each county and publicly available through a county recorder’s office. All current monthly data at the national, state, metro, city, ZIP code and neighborhood level can be accessed at www.zillow.com/local-info/ and www.zillow.com/research/data.

(ii) https://www.census.gov/library/publications/2017/demo/p60-259.html

(iii) The Zillow Home Value Index (ZHVI) is the median estimated home value for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period. It is expressed in dollars, and seasonally adjusted.

(iv) The Zillow Rent Index (ZRI) is the median Rent Zestimate® (estimated monthly rental price) for a given geographic area on a given day, and includes the value of all single-family residences, condominiums, cooperatives and apartments in Zillow’s database, regardless of whether they are currently listed for rent. It is expressed in dollars.

(v) Mortgage rates for a 30-year fixed mortgage

(vi) Monthly high occurred on August 1st