Housing Price Increases have been Less Than You Think

Over the last 7.5 years, the Case-Shiller national home price index has increased 24.9% on a cumulative basis. But I have argued in numerous articles that that figure is grossly overstated. A new RealtyTrac report supports my claim, and shows the actual number is only 16%. Let's take a good look at this report to find out what has really occurred in major housing markets around the country.

In April 2016, RealtyTrac published its US Home Sales Report for the first quarter of 2016. This included a detailed study of 125 housing markets in which a minimum of 300 sales were closed in March. RealtyTrac analyzed all sales for which they had data on the previous sale of that property.

Here is what they found. The median percentage gain for all 125 metros studied was a 16% gross gain (before commissions) from the time of the previous purchase of the house. Home sellers in all metros covered by the report owned their property for an average of 7.7 years. This represents an annual gain of only 2% per year.

In 15% of all these metros, sellers, on average, sold their property for less than what they paid. There was no recovery at all in those markets. West Coast metros showed the largest percentage gain over the previous sale of the home. Take a good look at the following table showing the best and worst metros.

The three housing markets with the highest profit percentages are all major California metros. This is no accident and not a surprise. More than a year ago, 40% of all the outstanding bubble-era non-prime mortgages in California had already been modified, a percentage much higher than any other large state. This percentage has risen steadily from 17% in early 2011. Because of these modifications, the overall delinquency rate is much lower in California.

The result has been the complete collapse of foreclosures in California – from 30,000 at the peak in August 2008 to a mere 2,000 in August 2016 according to the highly-regarded California Real Property Report. The removal of so many of the lowest priced homes from the market, has artificially inflated both Case-Shiller and median sale prices in California.

Housing demand has been stimulated in California by two major factors. One is the employment boom in Silicon Valley due to the tremendous growth of five Internet giants – Apple, Google, Amazon, Facebook and Netflix. The other is the huge influx of wealthy buyers from China looking for a safe haven for their money. This has caused the high-end markets in both the San Francisco and Los Angeles metros to soar.