Veros Real Estate Solutions announced that San Francisco and other metro areas in California are poised for the country’s strongest levels of appreciation in the coming year. The forecast also reports select markets in the Northeast will continue depreciation trends, though these trends are lessening. This is the conclusion of the company’s VeroFORECAST real estate market forecast for the 12-month period ending June 1, updated quarterly and covering 969 counties, 324 metro areas, and 13,502 zip codes. 

Veros’ future home price index (HPI) forecast continues to show significant strengthening and improvement across the nation, particularly in the west, including Texas. The HPI indicates that, on average for the top 100 metro areas, Veros expects 3.1 percent appreciation over the next 12 months. This is the fourth consecutive quarter where the index has shown forecast appreciation. In a dramatic improvement, most areas of the country are now expecting to see appreciation with far fewer areas showing price declines. As of this forecast update, nearly 90 percent of U.S. markets are expected to see appreciation, while the remaining markets (approximately 10 percent) are expected to experience declining home prices. This is a highly positive national trend given last quarter’s split at 75 percent of markets appreciating and 25 percent of markets depreciating.

Projected Five Strongest Markets*
1.   San Francisco-Oakland-Fremont, CA +12.7 percent
2.   Los Angeles-Long Beach-Santa Ana, CA +11.6 percent
3.   San Jose-Sunnyvale-Santa Clara, CA +11.1 percent
4.   Midland, TX +11.1 percent
5.   Phoenix-Mesa-Scottsdale, AZ +10.9 percent 

Projected Five Weakest Markets*
1.   Poughkeepsie-Newburgh-Middletown, NY -2.9 percent
2.   Kingston, NY -2.1 percent
3.   Norwich-New London, CT -1.9 percent
4.   Bridgeport-Stamford-Norwalk, CT -1.8 percent
5.   Atlantic City, NJ -1.6 percent

*Markets demonstrated are for residential real estate in major metro areas (typically greater than 250,000 residents) among single-family homes in the median price tier.

Essentially, all markets in the top 5 positions now have double-digit forecast appreciation, with the re-emergence of California markets taking over three of the top 5 spots. 

San Francisco is experiencing a serious housing shortage, with supply down nearly 80 percent from its peak in 2008. Although prices are still relatively expensive compared with much of the U.S., affordability is back to 2004 levels. This low supply, historically good affordability, relatively low unemployment of 6.7 percent (compared to the 7.5 percent national unemployment rate) and continued low interest rates are propelling this market to the #1 spot with 12.7 percent appreciation forecast. Similarly, the Los Angeles and San Jose market upswings are about the significantly reduced housing supply, down more than 70 percent and 75 percent respectively from their peaks. In Los Angeles, affordability is back at levels not seen in more than a decade and the low unemployment rate in San Jose are positioning these markets in the #2 (+11.6 percent) and #3 (+11.1 percent) spots respectively. 

Moving out of California, Midland, Texas and Phoenix round out the list of VeroFORECAST’s anticipated strongest markets with 11.1 percent forecast appreciation and 10.9 percent appreciation, respectively.  Both markets have made regular appearances on the top 5 list and demonstrate consistent strength. “It’s encouraging to see steadily rising appreciation expectations,” commented Eric P. Fox, vice president of statistical and economic modeling for Veros. “What we are seeing now indicates a return to a healthy market with improvements appearing in a conservative yet correcting manner.” 

Florida, Washington, Colorado, North Dakota, and Idaho are looking particularly strong as well. Although not making it into the top 10, Houston, Austin, and Dallas are expected to fare well also, and Boston is finally positioned for recovery.

On the other end of the spectrum, New York, New Jersey and Connecticut occupy this quarter’s bottom 5 markets as the anticipated weakest market areas. In Poughkeepsie and Kingston, New York, as well as Norwich and Bridgeport, Connecticut metros, unemployment rates are proving to be a significant driver, keeping each of these markets moving in a downward trend. Interestingly, a few of these markets are also being strongly influenced by population trends, where either the area’s population has declined or remained flat, and as a result, lack the demand associated with an influx of new residents to motivate housing turn-over and, ultimately, the growth that tends to accompany healthier housing markets.

Atlantic City takes the fifth position on VeroFORECAST’s bottom 5 list at -1.6 percent. Although it is still ranked as one of the nation’s weaker markets, residents should be encouraged by the upswing from last quarter’s -4.2 percent forecast which was driven by high mortgage delinquencies and unemployment rates. 

The majority of the poor performing markets are primarily in the Northeast portion of the country, with parts of Connecticut and New Jersey expected to fare poorly relative to the remainder of the U.S. Pockets of the South are also forecast to be weak, especially Mississippi and Alabama, along with areas of South Carolina. 

“Overall, the recovery in the housing market is forecast to continue to accelerate and quite significantly over the previous quarter,” said Fox. “We have been consistent in our position over the past year that the recovery will be lengthy and gradual, which it has been, while many were talking about ‘shadow inventory’ pulling the housing market back down and creating another recession. Now we are finally over the hump with appreciation being the forecast norm,” he noted. “Although strong appreciation is expected for months 13 to 24 in the forecast, it is not as strong as in months 1 to 12. That is to say, we are seeing the first signs a year or two from now that the rapid increase of prices will slow a bit in many parts of the country. However, we don't foresee drastic slowing - simply some moderation.” Fox said.