Veros Real Estate Solutions, a provider of enterprise risk management solutions, collateral valuation services and predictive analytics, announced last month that although the percentage of residential markets expected to increase in value over the next 12 months has remained steady, dipping slightly to 82 percent in December from the previous quarter’s 83 percent, the decreasing number of first-time homebuyers is influencing market softening.
This insight comes from the company’s most recent VeroFORECAST, a national real estate market forecast for the 12-month period ending Dec. 1, 2015.VeroFORECAST is updated quarterly and covers 992 counties, 338 metro areas and 13,616 ZIP codes.
The national forecast remains at plus-2.4 percent annual appreciation, consistent with the previous VeroFORECAST rate. It is the 10th consecutive quarter in which the index has shown forecast appreciation, but the pace has continued to slow.
The percentage of first-time homebuyers has dropped to 33 percent, down significantly from the long-term national average (dating back to 1981) of 40 percent, a 27-year low. Tighter lending restrictions, such as large cash downpayment requirements and increased housing prices are causing millennials to be reluctant about jumping into the market. This, in conjunction with investors shifting out of buying homes in many markets because of higher prices, is delivering a double blow to some markets.
“While we are seeing a worrisome drop in first-time homebuyers, there are policy changes being put into place with the intent to move the needle on the growth of this particular homebuyer, specifically with the GSEs new policy of 97 percent LTV,” said Eric Fox, Veros’ vice president of statistical and economic modeling and developer of VeroFORECAST.
Fox notes that despite this single variable, there is stability in the market.
“Although the market overall is expected to be healthy, with most markets appreciating, the level of forecast appreciation is certainly lower than forecasts three or four quarters ago,” Fox said.
Additionally, housing supply and unemployment rates continue to be major influencers in the national market appreciation and depreciation forecasts, Fox said.
“We are seeing housing supplies down anywhere from 35 percent to 70 percent in our top markets,” Fox said. “Low unemployment rates and population growth are driving housing prices upward.
“Conversely, where unemployment rates exceed the national average, the result is increased housing supply and waning population trends, causing a forecasted decline in those areas,” Fox continued. “Similar to last quarter’s forecast, the bottom performing markets continue to be in the eastern part of the nation.”
Projected top five strongest markets*
- San Jose-Sunnyvale-Santa Clara, Calif., (Up 9.9 percent)
- Bend, Ore., (Up 9 percent)
- Houston-Sugar Land-Baytown, Texas, (Up 8.5 percent)
- San Francisco-Oakland-Fremont, Calif., (Up 8.2 percent)
- Santa Cruz-Watsonville, Calif., (Up 8.1 percent)
Projected top five weakest markets*
- Vineland-Millville-Bridgeton, N.J., (Down 2.4 percent)
- Sumter, S.C., (Down 2.4 percent)
- Jacksonville, N.C., (Down 2.2 percent)
- New Haven-Milford, Conn., (Down 2 percent)
- Atlantic City, N.J., (Down 2 percent)
The top 25 strongest/weakest markets are available on Veros’ website.
*Markets demonstrated are for residential real estate in metro areas (typically greater than 100,000 residents) among single-family homes in the median price tier.