Veros: Residential Market Values to Slow a Bit

Veros Real Estate Solutions, Santa Ana, Calif., said residential market values should continue their overall upward trend over the next 12 months, with overall annual forecast appreciation of 3.5 percent, slightly lower than previously forecast.

The company’s quarterly VeroForecast shows general market strength for the overall U.S. residential real estate market in through first quarter 2018, with the same markets forecast to continue to do well as compared the fourth quarter, when annual appreciation was forecast for 3.7 percent. Just 4 percent of markets nationwide are expected to depreciate.

“The big news is that despite the overall market strength, interest rate-sensitive markets are starting to show signs of cracking,” said Eric Fox, vice president of statistical and economic modeling with Veros. “These markets are predominantly very expensive and interest rate increases significantly soften demand for consumers on the margin of affordability.”

For example, Fox said, markets in California’s Bay Area show continued weakening of their forecasts in anticipation of higher interest rates. San Francisco is forecast to appreciate by 4 percent in the next year, down from the fourth quarter forecast of nearly 6 percent. San Jose shows a similar pattern, appreciating at slightly over 4 percent this quarter from more than 6 percent last quarter. The long-range forecast for these markets shows even stronger weakening, moving down to just 1 percent appreciation rate at the end of the 24-month horizon.

Bottom-performing markets, the forecast reported, are expected to depreciate by 1-2 percent, with the worst three markets expected to be in Arkansas. The worst performing market is expected to be Hot Springs, Ark., with forecast 2.6 percent depreciation, followed by Fort Smith (-2.4 percent) and Pine Bluff (-2.1 percent). Others in the bottom include Torrington, Conn. (-2.0% percent) and Binghamton, N.Y. (-1.8 percent).

“Consistently, the worst performing markets in the country are areas where population trends have either been flat or on a steady decline for years,” Fox said.

Conversely, the forecast said nine of the top 10 U.S. markets are in Northwest corner states: Washington, Oregon and Colorado. “Seattle and Denver again lead the way in the #1 and #2 spots with forecast appreciation of 10.7 percent and 9.6 percent, respectively.

Veros said the Seattle market remains strong with a supply of homes at barely over 1.0 month, continued population growth and unemployment at just 4.2 percent. Similarly, Denver’s supply of homes is tight at 1.2 months. This coupled with its modest unemployment rate of 2.8 percent and rapid population growth, makes Denver one of the strongest markets in the U.S.

“Parts of Texas–Dallas and Austin–as well as a few Florida cities, mimic these trends and are expected to remain strong,” Fox said.