Are hot spots coming back
Home sales and prices in a number of Sun Belt cities showed rapid improvement over the past year amid an ongoing recovery in the overall U.S. housing market.
Many of the gains enjoyed by Sun Belt cities — including Phoenix, which led the way with a nearly 30% year-over-year rise in its median home price in 2012 — are due to the inevitable rebound that happens after a market collapses.
Housing markets also benefited from buyers moving to gobble up homes before values rose more.
Whether last year's gains represent a temporary rally, or a sustained return to more stable pricing, will become clearer in coming months and quarters. Rising median — or midpoint — prices can also mean more buyers are picking up higher-priced types of properties than lower-priced ones, such as foreclosures.
Many economists sound optimistic that Sun Belt markets will continue to improve, though at a slower pace than in 2012.
"Eventually we will see it alleviate and get back to stable, steady, moderate price growth, which is what we want," said Ken Fears, an economist at the National Association of Realtors. "The higher demand has pulled down inventories, so you could see protracted price growth, but at a bit of a slower rate.
The preliminary median existing-home price for all U.S. markets rose 6.3% in 2012 from the previous year, the biggest yearly gain since 2005, according to a January report from the NAR.
Prices accelerated even faster toward the end of the year. The national median existing-home price in December climbed 11.5% year-over-year. Preliminary existing-home sales rose 12.8%.
Long Way To The Top Sun Belt regions showed similar gains. In the South, existing-home sales in December rose 14.7% year-over-year, while median prices gained 11%. Existing-home sales in the West increased 8.8% from a year ago in December, while median prices rose 17.3%.
While such lifts are encouraging, they should be put into context.
ZipRealty (ZIPR), a provider of residential real estate brokerage services, culled data from Multiple Listing Service (MLS) surveys showing that Phoenix's median home price rose 29% to $145,000 last year.
Despite the increase, prices are still well below median prices of around $235,000 during the housing peak in 2007.
ZipRealty CEO Lanny Baker says data show similar patterns in California markets such as Orange County, San Diego and Sacramento.
"Values went down so dramatically that even though we might see prices up by 25% in some markets year-over-year, they are still down by 50% from a few years ago," he said. "Off of that bottom, you can generate some eye-popping price acceleration.
It's unlikely that home values will return any time soon to levels established before the housing markets crashed, Baker and others say. But there is optimism that home prices will continue to rise as the number of available homes shrinks.
"In the markets we serve, there are about one-third fewer properties for sale now than a year ago, and almost 50% fewer than two years ago," Baker said. "That reduction is pretty notable.
Ten markets of 33 that ZipRealty surveyed enjoyed a double-digit gain in median home prices last year — and nearly all of those were warm-weather havens. Only two seeing a double-digit percentage lift were outside Sun Belt states: Minneapolis (13%) and Denver (10%).
Miami ranked second behind Phoenix, with a 23% increase. Then came Palm Beach, Fla., with a 16% gain. Other markets on the list are San Francisco (with a 14% increase), Orlando (14%) and Tampa (13%) in Central Florida, Tucson (11%) and Las Vegas (10%).
Like Phoenix, Las Vegas was among markets hardest hit in the housing crisis. Unlike Phoenix, Las Vegas has yet to see a huge surge in sales and prices. There are a couple reasons for it beyond a big overhang of foreclosures that accumulated.
"Phoenix has a more diversified economy than Las Vegas, and it also has a strong retirement community," the NAR's Fears said. "Phoenix can attract young workers and retirees in a way that Las Vegas can't match.
Texas Keeps Trucking Meanwhile, three large Texas markets also saw decent median price gains last year, according to the ZipRealty report. Dallas and Austin both enjoyed 7% increases, while Houston saw prices rise 6%.
Prices and sales should continue to show steady growth in Texas, says Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University.
He cites data showing that there are 4.3 months worth of housing inventory statewide. That compares to an average of 6.5 months over the past 15 years. You have to go back to April 2000 to find a lower inventory figure, Dotzour says.
"It tells me that the outlook for price appreciation is pretty strong," he said. "Normally in this environment, you would see a lot of homebuilding, but right now homebuilders are still pretty constrained by lending.
Dotzour says publicly traded homebuilders hold a big advantage over privately held builders right now because they have another source of funding besides banks and other financial institutions.
IBD's Building-Residential/Commercial industry group ranks No. 17 right now of 197 tracked. Several of its biggest names are up in the stock market by double-digit percentages this year, though the group has slipped 3% this month. D.R. Horton (DHI) has risen 19% year to date, Toll Bros. (TOL) 13%, NVR (NVR) and Brookfield Residential Properties (BRP) 9%, Standard Pacific (SPF) 10% and KB Home (KBH) 17%. The largest builder in the group by market capitalization, PulteGroup (PHM), is up 8% and No. 3 in size Lennar (LEN) is up 5%.
The group got a new member last month with the IPO of California-based Tri Pointe Homes (TPH), which priced at $17 a share and closed Thursday at 18.45. It was the first homebuilder IPO since 2004.
Dotzour says he "wouldn't be surprised" to see more builders having IPOs this year to raise money for development projects.
If that happens, some Sun Belt housing markets might find themselves getting new inventory even as they work to sell off excess inventory that has been sitting empty.
"Whenever there's a market opportunity for three units, somebody comes in and builds five. That's the nature of capitalism," Dotzour said. "But I think it will be a while before we see a substantial amount of building in some of these markets."