Predicting real estate depreciation

Predicting real estate depreciation

In our first HousingWire column, last week, I explained how each quarter Veros Real Estate Solutions creates 12-month VeroFORECASTSM projections of residential property appreciation across the United States. I also detailed the 10 markets that we predict will have the highest appreciation between March 1, 2018 and March 1, 2019.

The projected value of real estate is constantly changing. However, carefully researched, reliable projections always have value for real estate and mortgage professionals. There are many reasons for this, but among the most vital are that this data can help lenders anticipate risk and facilitate loan portfolio management.

The VeroFORECAST released in late March 2018 incorporated data on SFRs, condos and townhouses in 342 Metropolitan Statistical Areas (MSAs). These MSAs are where 82% of the U.S. population live, and include more than 13,600 zip codes. Property values in just nine of the 342 MSAs are projected to depreciate, and none of those drops in value are predicted to be more than 3%.

The accuracy of these projections is enhanced by incorporating historic data from another proprietary Veros data source, the VeroHPISM, or Housing Price Index platform, which provides comprehensive data going back up to 30 years. Together, VeroFORECAST and VeroHPI help us look both forward and backwards in time.

PROJECTED POOREST PERFORMING MARKETS

Housing supply and population growth are key indicators that go into the VeroFORECAST projections, with very high inventory pushing prices down and slow population growth or declines contributing to low demand in declining areas. Within the 25 MSA markets in our current report that show the highest projected appreciation, the average population is 950,000. For those 25 metros predicted to depreciate or have the lowest projected appreciation, the average population is just 300,000.

Looking regionally, we also see that 92% of those top 25 markets are west of the Mississippi River and 72% or 18 of the 25 markets forecast to perform the worst are east of the Mississippi. And, generally, these bottom five markets are in very slow growth metros.

The nine markets in which real estate values are projected to show an average depreciation are Atlantic City-Hammonton, New Jersey (-2.9%), Joplin, Missouri (-1.4%), Goldsboro, North Carolina (-1.1%), Longview, Texas (-0.8%), Peoria, Illinois, (-0.6%), Trenton-Ewing, New Jersey (-0.6%), Springfield, Illinois (-0.5%), Vineland-Millville-Bridgeton, New Jersey (-0.5%), and St. Joseph, Missouri/Kansas (-0.1%). Rounding out our list of ten poorest performing markets, is Huntington-Ashland, West Virginia/Kentucky/Ohio, with values forecast to be unchanged (0.0%).

At the top of the list of poor performing markets is Atlantic City, where low demand for housing reflects a population that has been declining for decades. On the other hand, unemployment here is 6.4%, a full two-and-a-half percentage points above the national average. Supply is around nine months and continues to rise.

Second-place Peoria’s sluggish forecast is due to relatively flat population growth over the past decade and an unemployment rate of 4.6%.

HISTORIC PERSPECTIVES

Although these rates are troubling for homeowners and lenders in these markets, the national picture is a far cry from a decade ago when VeroFORECAST projections showed depreciation as high as 15% over the subsequent 12 months.

In our January 14, 2008, VeroFORECAST for example, the impact of the financial crisis on the mortgage industry was severe and mounting. Markets that had been top performers were now in the most jeopardy. At that time, the five MSAs with the highest projected depreciation were all in California and Florida, with forecasts of dropping values between -12% and -15%.

Our VeroFORECASTS from six years ago show California still had the highest-depreciating markets among the top five. Florida MSAs had exited the appreciation cellar, replaced by another Western state, Nevada. However, by that time the predicted rates of depreciation for the 12 months between March 2012 and March 2013 had tapered off to between -4.7% and -6.3%.

GET ALL THE DATA

Additional forecasts and infographics for U.S. markets are available for download and upon request. Visit Veros.com for the full VeroFORECAST report. Real estate and mortgage professionals and those in the financial services sector who wish to receive either the complete quarterly reports or regional reports as they are released can subscribe. For more information email communications@veros.com or call 714.415.6300, option 6.

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