The number of homes for sale is down in many markets, with asking prices up–especially in these places.
This month, after three years of record declines, the battered housing market has shown some signs of hope. Tuesday the S&P/Case-Shiller 20-city Home Price Index, which is a gauge of sale prices in the country’s major markets, showed a seasonally adjusted 0.3% increase between November and December.
This gives economists hope for a recovery, in addition to February news from the Department of Commerce that housing starts were up 2.8% in January. All of this portends good things for the national market in general–but in some particular areas there are very clear signs of life.
Asking prices on single-family homes have increased as much as 36% from the previous year in some cities, an indicator that Michael Simonsen, CEO of Altos Research, a Mountain View, Calif. market research firm, says reflects “a bounce off the bottom of the bubble bursting.”
In cities like Lexington, Mass.,Poway, Calif., a suburb of San Diego, and Allison Park, Pa., outside Pittsburgh, prices have risen because lower-price homes are moving off the market more quickly than higher-price ones, thanks to government incentives including the First-Time Home Buyer Credit.
Elsewhere, such as in University City, Mo., inventory has risen by 29%, showing demand might still be soft, but the new homes on the market are significantly higher-priced than they were last year.
Behind the Numbers
To find out where prices are increasing the most, Altos Research pulled data for every U.S. city with at least 100 homes on the market (roughly 8,000 cities), and found those with the biggest price jumps from the previous year. They used median asking prices based on a 90-day-rolling average as of Feb. 12, 2010. Altos tracks asking prices for single-family homes but not condominiums.
Asking price, or list price, can be revealing because it records the price of a home at the earliest point in a sale. With asking prices, trends in the market show up earlier than in other indexes, such as the sale price, or closing price, of a home–numbers that aren’t recorded until several months down the road. Asking prices also say a lot about owner sentiment: If sellers are asking for more money, it means they sense demand.
Moving up in Massachusetts
Lexington, Mass., has seen prices increase more than anywhere else. List prices rose 36% since last year, to a median $1,197,923. But this more likely reflects a change in the type of house for sale than an increase in the price of a typical house.
That’s because price per square foot–a measure that helps evenly compare houses against each other–has stayed flat in Lexington since this time last year. That suggests that the city’s 10% drop in inventory means not only market demand, but demand for lower-price houses.
The historic Northeastern town has tourist appeal as well as a top-tier school system. Lures like these, combined with historically low interest rates, have allowed families to snatch reasonably priced homes off the market faster, while higher-price homes take longer to sell, pulling up the median price.
Inventory has tightened throughout the market, not just in Lexington. In 83 of the 100 fastest-increasing markets, the number of homes for sale is down since this time last year.
Only in one of our top 10 cities–University City, Mo., a suburb of St. Louis– has inventory increased along with home prices, which are up 26%. In this less affluent Midwestern city (the median asking price is $193,204), sellers are getting bolder in pricing the homes on the market, of which there are 29% more than last year.
Bright Spots in California
Three of the top 10 markets for rising prices are in California, a state at the heart of the real estate boom and bust. But because markets in that state were inflated earlier, many were well positioned to make a comeback even before the larger economy recovered.
That’s true in the cities of Sunnyvale (in Silicon Valley), Poway and affluent Arcadia, outside of Los Angeles, where prices increased an average of 28%. Inventory has dropped in these markets, suggesting demand is up, and prices in California rose overall from January 2009 to August 2009. That’s a natural seasonal trend for healthy markets, but it hadn’t been reflected in California since the bust.
“That natural seasonal stuff didn’t happen in 2008 in the California markets,” says Simonsen. “2007 to 2008 was the big bust, so the expected seasonal uptick didn’t happen. It did in 2009.”
However, it’s futile to draw conclusions about the national market from a few cities, and it’s just as difficult to predict what turns a local market will take based on national trends. But data that bores down into local trends and uncovers positive signals, alongside indicators of a broad national recovery, together tell a story that the country’s beleaguered housing market may be finding solid footing.
Top 5 Cities Where Home Prices Are On The Rise
No. 1: Lexington, Mass.
Median price: $1,197,923
Year-over-year price change: 36%
Year-over-year inventory change: -7%
Year-over-year price per square foot change: 0%
No. 2: Bay Village, Ohio
Median price: $240,015
Year-over-year price change: 32%
Year-over-year inventory change: -8%
Year-over-year price per square foot change: 8%
No. 3: Sunnyvale, Calif.
Median price: $800,604
Year-over-year price change: 32%
Year-over-year inventory change: -31%
Year-over-year price per square foot change: 9%
No. 4: Poway, Calif.
Median price: $864,608
Year-over-year price change: 27%
Year-over-year inventory change: -6%
Year-over-year price per square foot change: 2%
No. 5: University City, Mo.
Median price: $193,204
Year-over-year price change: 26%
Year-over-year inventory change: 29%
Year-over-year price per square foot change: 6%