Sacramento: Home Value Forecast's Pick as the "Next Phoenix"

by 08 Aug 2012

Another Hard Hit Housing Market Showing Positive Leading Indicators For A Rebound

WALTHAM, MA – August 8, 2012
– Pro Teck Valuation Services’ August Home Value Forecast Update explores which hard-hit metros may be the next Phoenix, AZ:  on the rebound and good candidates for investment or home buying opportunities.

“Two previously hard-hit metro areas that stand out are Orange County (Santa Ana) and Sacramento, California,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “Sacramento is particularly interesting because like in Phoenix, home prices overshot on the downside after the market peak in 2006.  All nine of Sacramento’s market-based indicators are exhibiting positive changes from a year ago. For example, the number of active listings is down 39.21 percent, months of remaining housing inventory down to 3.65 months and foreclosure sales down 52.79 percent.”  

To help predict the longer-term cyclical turning points of real estate markets, Home Value Forecast partner Collateral Analytics previously developed a Leading Real Estate Index (LREI) for all Core Based Statistical Areas (CBSA) in the U.S.  The authors show how the LREI for Sacramento had accurately predicted the most recent upturn and downturn in the market.  This Leading Index is based on a number of fundamental factors that drive real estate markets, such as employment growth, home sales activity, the unemployment rate, housing affordability index, new building permits, etc. The LREI is a “diffusion index” that measures how many components of the LREI are moving in a positive direction at any point in time. The LREI passing up through a value of 50 is a good precursor of a pending increase in home prices while a move down through 50 is a signal of flat or declining prices.

“Sacramento’s LREI has been climbing over the past two years and recently shot up to a value of 50, which means that half of its components are moving in a positive direction relative to their historical performances and that further home price appreciation is expected,” added O’Grady. “Another important factor supporting home prices in Sacramento is affordability.  This month’s Home Value Forecast shows that Sacramento’s housing affordability index is at its highest level in years. Also, in many areas of the Sacramento market, we are seeing nearly every ZIP code classified as “good” or “normal” according to our most recent Market Condition scoring system, which is in contrast to the weakness in the market a year ago.”

This month’s Home Value Forecast update also includes a listing of the 10 best and 10 worst performing metros as ranked by our market condition ranking model. The rankings are run for the single family home markets in the top 200 CBSAs on a monthly basis to highlight the best and worst metros with regard to a number of leading real estate market indicators, including: sales and listing activity and prices, MRI, days on market, sold-to-list price ratio and foreclosure and REO activity.

“Our market of interest this month, Sacramento, is one of four California metros in the top 10,” said Michael Sklarz, Principal of Collateral Analytics and contributing author to Home Value Forecast. “New additions this month include Seattle, WA, Richmond, VA, and Grand Rapids, MI.  All of these markets have experienced significant declines in active listing counts over the past year. This has led to most of these markets currently having balanced or tight markets based on their remaining months of housing inventory.”

August’s top CBSAs include:

Sacramento-Arden Arcade-Roseville, CA

West Palm Beach-Boca Raton-Boynton Beach, FL

Baton Rouge, LA

Seattle-Bellevue-Everett, WA

Richmond, VA

Santa Ana-Anaheim-Irvine, CA

Oxnard-Thousand Oaks-Ventura, CA

Santa Rosa-Petaluma, CA

Grand Rapids-Wyoming, MI

Phoenix-Mesa-Glendale, AZ


“In our bottom CBSAs, prices in many of these metros, especially in the Northeast have held up much better since the market peak in 2005-06 compared to the current top ranked markets,” added Sklarz. “This helps explain why the relative rankings in that the bottom ranked metros are not offering the same bargains as the top ranked ones with regard to compelling prices and high rental yields.”

The bottom CBSAs for August were:

Huntsville, AL

Edison, NJ

El Paso, TX

Nassau-Suffolk, NY

Newark-Union, NJ-PA

Spokane, WA

Lake County-Kenosha, IL-WI

Greenville-Mauldin-Easley, SC

Bridgeport, Stamford, Norwalk, CT

New Haven-Milford, CT


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