The data behind the housing market optimism and weakness

In mid-June, Nobel laureate Robert Shiller summarized the upbeat findings of a housing survey with “At an average rate of more than 6%, household expectations for home prices over the next 12 months are remarkably high.”  He described the expectations as reflecting a “healthy optimism”.

So what’s behind the optimism?  Can we measure it?  Can we explore it? 

The US Housing Market Vitality Indicator gauges the impact of prevailing economic conditions on future house prices. It is quoted such that a value of 104 corresponds to a 4% forecasted appreciation in short-term house prices and a value of 92 corresponds to an 8% depreciation.

The US Housing Market Vitality Indicator (HMVI) has consistently read 106 or better since November 2017.  In other words, for the last over 18 months, aggregate economic conditions have supported 6% or higher house price appreciation.  So, indeed, the survey respondents’ healthy optimism is explained by their actual recent experience as reflected by local economic conditions.

For a more granular perspective, the table below lists the 20 metro areas corresponding to the Case-Shiller 20-City Composite Index and their May 2019 HMVI forecasted performance relative to the national market.

Metro areaHMVI Forecast Band
Portland-Vancouver-Hillsboro, OR-WAOutperform
Tampa-St. Petersburg-Clearwater, FLOutperform
Miami-Miami Beach-Kendall, FL Outperform
Dallas-Plano-Irving, TX Outperform
Las Vegas-Henderson-Paradise, NV Outperform
Detroit-Dearborn-Livonia, MI Outperform
San Francisco-Redwood City-South San Francisco, CA Outperform
Boston, MA Outperform
Atlanta-Sandy Springs-Roswell, GA Outperform
Denver-Aurora-Lakewood, CO Outperform
Charlotte-Concord-Gastonia, NC-SC Outperform
Los Angeles-Long Beach-Glendale, CA Track
Minneapolis-St. Paul-Bloomington, MN-WI Track
New York-Jersey City-White Plains, NY-NJ Track
Seattle-Bellevue-Everett, WA Track
Washington-Arlington-Alexandria, DC-VA-MD-WV Track
San Diego-Carlsbad, CA Underperform
Chicago-Naperville-Arlington Heights, IL Underperform
Phoenix-Mesa-Scottsdale, AZ Underperform
Cleveland-Elyria, OH Underperform

Four out of the 20 metro markets listed above are forecasted to have lower price appreciation than the national market and another five markets are forecasted to track the national trend.  And therein lies the other narrative about the current housing market — weakness.

Percent of metro markets where prices are forecasted to decrease in the short-term. The values are expressed as log odds to magnify the trend.

Based on the Metropolitan Housing Market Vitality Indicators, since the second half of 2017 there has been a steady increase in the number of metro markets where house prices are forecasted to decrease.  The number has ranged from less than 0.25% of all 402 metro markets in June 2017 to over 4.5% in May 2019.  So, yes, there is weakness in some metro housing markets — house prices are forecasted to decrease.

So what does all this mean? Let’s leave it to the pundits to debate whether a downturn looms; the market is softening; continuing to cool; or things are a little more nuanced. For investors, lenders, and others who must take action, HousingIQ provides the timely, fact-based, actionable insights for making profitable decisions. Let’s talk.