The demand for most real estate is local. Thus, at least for housing, it is local supply and demand that affects both rents and values (excluding destination and vacation properties). In the very first installment of Jones on Real Estate the concept of There Is No Such Thing As A National Real Estate Market, which I call the TINSTAANREM clause, was introduced. Once again that is proved true by a study in home price changes by state. Each and every locale is unique, with differences in economic growth, construction, demographics and future expectations.
So what were the top growth states for the 12-months ending September 2015 and also the expectations for the next year? To answer that, the CheatSheet® reported the latest data from CoreLogic® on home price changes and forecasts state-by-state. While home prices nationwide were up 6.4 percent, each of the top-10 states delivered a minimum 6.8 percent 12-month rise, with Colorado and Washington both posting double gains. CoreLogic’s forecast year-over-year is for a 4.7 percent gain in home values nationwide.
Part of the issue on home price gains being so strong is that, simply stated, demand continues to outstrip supply. In the 12-months ending September 2015, the U.S. created 2.764 million net new jobs (adjusted), but only issued 1.053 million new dwelling unit permits. The permits ranged from apartments to mansions and everything in between. This equates to 2.62 new jobs per new dwelling. Economists believe that 1.25 to 1.5 new jobs are needed to support each new dwelling unit (assuming a market in equilibrium). Hence new current demand hovers around double that of new supply. The following graph shows the number of residential building permits issued annually since 1999 with 2015 being the latest 12 months.
It’s just not exclusively the supply and demand for housing that is keeping prices robust. As long as housing outperforms alternative investments, it will attract more capital. In the 12-months ending September 2015, for example, while housing prices were up 6.4 percent, the SP500 lost 2.65 percent (excluding dividends).
Today, many in the U.S. have a whole lot of cash looking for a home. M1, a common measure of the money supply (essentially cash, demand deposits and checking accounts but not bank reserves) has more than doubled in the past 10 years. It is up 122.2 percent climbing from $1.372 trillion at the end of mid-2005 to $3.052 trillion at the same time in 2015. Some of that cash is finding its way into housing.
To read the entire CheatSheet summary click http://www.cheatsheet.com/culture/10-states-where-home-prices-are-still-surging.html/?ref=YF
Just two states posted declines in home prices in the 12 months ending September 2015: Louisiana (-0.1 percent) and Mississippi (-0.88 percent).
Given the overall picture of demand growing at twice the rate of new supply, expect continued gains – though perhaps muted — in home prices and rents in the coming 12 months.
Ted