Clear Capital: Low Inventories Continue to Hamper Growth

Clear Capital, Reno, Nev., said summer real estate activity boosted quarterly regional growth in the Midwest and South, while a drop in quarterly performance out West fueled speculation of a cooling market.

The company’s Home Data Index Market Report said nationally, quarterly growth held steady in August, increasing slightly 0.1 percent from July, rising to an 0.8 percent price increase quarter over quarter, marking the first time since last November that national quarterly growth has broken the 0.7 percent mark, indicating that the peak real estate summer season is in full swing for the nation as a whole.

Most regions experienced a small boost in quarterly performance over the past month, with the Midwest seeing the largest increase in price growth, rising 0.3 percentage points to 0.8 percent quarterly growth. The South and Northeast quarterly growth figures also increased, rising to 0.9 percent and 0.3 percent quarterly growth respectively.

But Clear Capital Vice President for Research and Analytics Alex Villacorta said while the West is still outpacing the rest of the nation at a relatively impressive 1.2 percent quarterly growth rate, it fell by 0.2 percent from July. He said the “sudden” dip in quarterly gains could be a sign that the region’s strong spring performance is cooling down as summer comes to a close, a phenomenon likely due to a lack of affordable inventory and incredibly high prices in several major metro markets.

“The West in particular has been the subject of growing market uncertainty recently, and the region’s softening gains are definitely something we will be keeping an eye on as the industry’s peak season gets further in the rearview,” Villacorta said.

Disappointing growth metrics out of the Northeast are also a potential cause for concern, Villacorta said; a deeper dive with a price tier analysis for the region indicated that all market segments are performing–or rather, not performing–homogeneously. “Since all price tiers in the region are performing similarly, there are limited opportunities for both traditional home buyers and real estate investors to focus their energy, which is perpetuating the softening of home prices that we’ve been observing since last summer,” he said.

The report said southern metro markets continue to dominate Highest Performing Major Metro Markets in August, whereas metros from the Northeast are noticeably missing from the list. Clear Capital said the Northeast region has consistently been the slowest growing in the nation in recent quarters.

“Home to several key luxury markets like New York and Boston, a lack of affordable inventory has long been a concern for the region, serving to drive significant investor doubt into the marketplace,” the report said. “Coupled with this dip in investor confidence, regional data shows a long-term slowing growth trend across all price tiers since late 2013.”

The report said low-tier quarterly growth in the Northeast continues to outperform both the top and middle tiers, but price change in this lowest 25 percent of transactions is moving upward at only 0.5 percent quarterly. The region’s mid tier–the middle 50 percent of home sales–reported only an 0.3 percent price increase over the past quarter, while the Northeastern top tier–the highest 25 percent of transactions–was virtually stagnant, registering only an 0.1 percent quarterly price increase.