By the Numbers
Home prices rise in March, but some big cities appear challenged
This material is a Marketing Communication and does not constitute Independent Investment Research.
After a fairly stagnant first two months of the year, median sales prices jumped 2% year-over-year in March, according to Redfin. But the broad-based increase in home prices likely should not be construed as a sign of strength across markets. Market technicals in some of the largest cities including New York, Los Angeles and Chicago are currently strong but appear poised to weaken. Conversely, Sun Belt MSAs that have experienced a downturn, look to be stabilizing and in some cases, improving.
The average sale price of homes sold last month across all MSAs tracked by Redfin rose from $384,000 in March of last year to $393,000, representing a 2.3% year-over-year increase (Exhibit 1). Sales prices rose in excess of 2.0% despite median asking prices increasing by just over 1.5% over the same period, illustrating a taut supply technical in certain areas as buyers are forced to pay over asking prices in certain markets. And that supply technical looks likely to remain in place in the near term, as new listings are down roughly 2.5% versus last year. The average amount of time homes remained on market fell sharply in March as well, declining from an average of 58 days in February to just 51 days last month, driven to some degree by the start of the spring buying season.
Exhibit 1: Home prices rise in March after a slow start to the year
Source: Santander US Capital Markets, Redfin
National trends are strong but regional trends remain mixed
While headline numbers are strong, it appears they are masking a much more mixed picture at the MSA level. Only a handful of markets are flashing consistently strong metrics, marked by positive market momentum and seller strength. Large cities like New York, Los Angeles, Chicago, Boston and Washington DC maintain strong current market conditions but appear poised to soften. Certain areas, particularly the Sun Belt, appear to be stabilizing and improving after previously experiencing varying degrees of stress.
Currently strong markets include tech hubs of San Francisco and San Jose, along with metro-adjacent MSAs including Newark, Hartford and Lake County, IL. These MSAs are all marked by fairly tight inventories. Both San Francisco and San Jose have roughly two moths of supply on market and homes are selling between five to ten points over asking prices. These areas remain strong despite being extremely unaffordable based on traditional metrics. At a median price of just over $1.5 million, homes in San Francisco are clearing at values which represent roughly 1150% of the median income where the estimated monthly mortgage payment would represent more than 70% of median monthly income. This imbalance is even more pronounced in San Jose where the median home sale equates to roughly 1650% of median income where the monthly payment is in excess of 100% of monthly income. These numbers suggest a significant Gini coefficient, where a substantial skew in income distribution can support elevated valuations in the presence of a limited supply of homes.
Supply, slowing sales signal weakening trends in big cities
Home prices in New York, Los Angeles, Chicago, Boston and Washington DC all appear poised to soften. Los Angeles and New York carry severely challenged affordability, with median sales prices representing roughly 1100% and 900% of median income respectively. Unlike the tech hubs of San Francisco and San Jose, both New York and LA have seen a substantial downturn in both year-over-year and pending home sales. Year-over-year home sales have fallen by 7.6% and 6.5% respectively in LA and New York, while pending home sales have dipped by 6.7% and 9.8%. Supply metrics in Chicago, Boston and Washington DC are modestly better, with inventories ranging between three and four months. However, the pace of sales in both Chicago and Boston has slowed markedly, declining by roughly 9% year-over-year in both MSAs. All three cities have seen substantial amounts of inventory experience price reductions, ranging from 14% to 16.5% of listings seeing a price cut.
Signs of improvement in the Sun Belt
Certain Sun Belt MSAs have been marked by flattening or falling home values, attributable to rising inventories and increased non-fixed cost of home ownership as taxes and homeowner’s insurance have both increased both rapidly and meaningfully. However, there are datapoints that suggest that the Sun Belt looks to be stabilizing and even improving in some areas. While year-over-year home prices in major cities such as Miami and Fort Lauderdale are down slightly, prices in major MSAs on the west coast of the state have remained unchanged or risen slightly. Home prices in Tampa have risen by slightly more than 3% annually and prices in Naples, FL are unchanged. The biggest impediment to price increases is the large swath of inventory on market in many Sun Belt cities. Fort Lauderdale maintains by far the biggest supply overhang, with inventory currently sitting at 16 months (Exhibit 2).
Exhibit 2: Supply weighs on prices in Sun Belt MSAs
Source: Santander US Capital Markets, Redfin
A closer look into specific markets suggests that fundamentals in the Sun Belt may being improving. Looking at the Fort Lauderdale market specifically shows that pending sales have risen to unprecedented levels relative to the past few years. Absent a brief period in the second half of last year, pending home sales have been persistently negative on a annualized basis but have risen rapidly in recent months, suggesting at least for the near term, that specific market may have found firmer footing (Exhibit 3).
Exhibit 3: Pending home sales spike in Fort Lauderdale
Source: Santander US Capital Markets, Redfin
Based on Redfin estimates as of February, migration trends appear constructive for home values in Florida and Arizona, and less so for New York, California and Illinois. Based on these estimates, net outflow searches in California totaled more than 36,000 people while more than 25,000 people were looking to leave New York on a net basis. Conversely, net inflow inquiries to Florida exceeded 23,000 people. Of the top 10 areas people have moved to over the past three months, Sacramento did see the largest inflow, but Florida had four cities in the top 10. Cities like Cape Coral and Jacksonville, which have seen prices soften, may be becoming more attractive options for those looking to relocate as they saw net inflows of 4,200 and 3,000 people respectively over the past three months.
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