The latest release of the S&P/Case-Shiller Home Price Index was published yesterday. According to the report, house values across the country rose by 5.2% in October, compared to the same month last year. Denver, Portland and San Francisco saw the biggest home price increases, posting double-digit gains yet again.
“San Francisco, Denver and Portland continue to report the highest year-over-year gains among the 20 cities with another month of double-digit price increases of 10.9% for all three,” said the report.
So what’s going on in these three housing markets? Why are house values rising so much faster in these cities? There are influencing factors on both the supply and demand side of the equation. But it really comes down to one thing: There aren’t enough homes available to meet demand, and it’s pushing prices north.
Economist Calls Denver a ‘Hot Location’ in 2016
Earlier this month, the Denver Metro Association of Realtors (DMAR) reported that the number of homes for sale in Denver is still near a record low, despite a slight increase in recent months.
Svenja Gudell, the chief economist at Zillow, recently cited the Mile-High City as one of several housing markets where tight inventory is driving major price gains. “Denver, Seattle, Dallas/Fort Worth and Portland, where inventory has been declining in the last year and demand continues to rise, will also be hot locations in 2016.”
In short, there are plenty of people in the market to buy a home in Denver, but not enough homes to go around. So buyers are making strong offers, even when properties are already listed for top dollar. This is creating upward pressure on house values across the board.
It’s worth noting that the inventory crunch in this housing market is price-specific. Inventory is tightest toward the bottom of the pricing spectrum, particularly for “starter” homes. In the high-end luxury market, on the other hand, buyers have more options to choose from.
“There is almost sixteen months of inventory in this price point which strongly favors the luxury buyer,” said Nicole Rufener, a member of the DMAR market trends committee.
Inventory Tight in Portland Housing Market
Home prices in Portland also rose significantly during the last year. And here too, inventory has a lot to do with it.
According to Realtor.com, the total number of Portland homes listed for sale dropped by nearly 25% over the last year or so (Nov. ’14 – Nov. ’15). That’s a major inventory reduction, and it’s forcing buyers to compete fiercely for a shrinking pool of properties. Home prices typically rise during such supply-and-demand imbalances, and that’s exactly what we are seeing with Portland home prices.
While housing inventory has grown slightly in recent months, it is still well below what’s considered a healthy or balanced level. This means the Portland real estate market currently favors sellers over buyers.
Here’s how Matthew Gardner, chief economist at Windermere Real Estate, explained it to the Oregonian:
“Although improving modestly, the Portland housing market remains remarkably tight with only two months of inventory currently available to sellers. That’s still well below the 4 to 6 months we would normally see in a more balanced market.”
According to Zillow, home prices in Portland rose by more than 14% over the last year or so. Their economists predict that house values will rise by an additional 5% during 2016. This is based on their proprietary “Zestimate” method for measuring property values.
Home Prices Rising Rapidly in San Francisco
What can we say about the San Francisco housing market that we haven’t said before. It’s one of the hottest residential real estate markets in the country right now, and this trend will probably continue well into 2016.
Housing inventory in San Francisco has fallen steadily for the last few years. And according to at least one measurement, it continues to drop. Realtor.com reports a 2.2% year-over-year decline in S.F. homes listed for sale (when measured from November ’14 – November ’15).
Earlier this week, Realtor.com published a list of the hottest housing markets for the month of December. Their rankings are based on various factors of supply and demand. San Francisco topped the list for the second month in a row, followed by nearby San Jose.