The harder they fall, the faster they rise. That seems to be the case with home prices in Arizona, California and Nevada, the so-called ‘Sand States.’ In those states, homeowners enjoyed unbelievable property value gains during the housing boom. As it turned out, they really were unbelievable. The housing collapsed pushed those overinflated home prices off a cliff.
But now, Arizona, California and Nevada are outpacing the rest of the country in terms of home prices. Consider the evidence.
Case-Shiller: Biggest Home Price Gains in the Sand States
According to the most recent S&P/Case-Shiller Home Price Index, which was published on May 28, some of the largest annual home price gains have occurred within the Sand States.
Home prices in Phoenix, Arizona rose by 22.5% between March 2012 and March 2013. Prices in San Francisco climbed by 22.2% during the same period, while Las Vegas experienced an annual gain of 20.6%.
For several months in a row, Phoenix has posted the largest annual increase among metro areas in the Case-Shiller 20-city index.
CoreLogic: Nevada, California and Arizona Leading the Nation
CoreLogic, a real estate data provider, recently published a report that showed cities with the highest returns in home prices. Here again, the Sand States were well represented.
According to the CoreLogic report, home prices in Nevada rose by 24.6% over the last year, the largest annual gain of any U.S. state. Rounding out the top three were California (+19.4%) and Arizona (+17.3%).
Realtor.com: Major Inventory Reduction in California and Southwest
Each month, Realtor.com publishes a housing summary with pricing, listing and inventory data for 146 metro areas in the United States. When you sort the most recent data based on median list price increases, it becomes a who’s who of metro areas within the Sand States. The biggest gains were seen in a dozen of California cities, along with Phoenix, Las Vegas and Reno.
Inventory reduction is a major factor here. All of the Sand States accumulated huge housing surpluses after the crash. Too many properties on the market, and not enough buyers to absorb them all. Cities like Las Vegas, Phoenix and Sacramento also had a high concentration of distressed properties (foreclosures), as a percentage of total listings. This created a double whammy for home prices, shifting the supply-and-demand balance while saturating the market with low-priced homes.
But the inventory situation has changed for the better. Most of the major metro areas in California have experienced inventory reductions of 30% or higher. According to Realtor.com, the total number of listings in San Francisco has dropped by 31% over the last year. In San Diego, listings have declined by 35%. Orange County has seen a whopping 52% reduction in listings over the last year.
The major metros in Nevada have also experienced inventory declines, though not as sharp as those in California. The total number of homes listed for sale in Las Vegas dropped by 23% over the last year.
Phoenix is an exception to this rule. The inventory situation in Phoenix is actually leveling off right now, following a sharp period of decline that was largely the result of investors. Property listings in Phoenix have only declined by 4.6% over the last year, according to Realtor.com.
Job Growth Has Increased Housing Demand
Arizona, California and Nevada have also experienced significant improvements in their local job markets. During the first quarter of 2012, these states were actually leading the nation in terms of job growth. Collectively, they added 222,100 jobs from August to December of 2011. That accounted for 28% of US employment gains during that period, according to the Department of Labor.
Las Vegas’s unemployment rate peaked at 14.6% in 2010, but fell to 9.6% in April of this year. The jobless rate in the Phoenix metro area dropped from 10.5% to 6.6% over the last three years.
Granted, unemployment rates are still historically high in places like Las Vegas, San Francisco and Los Angeles. But they have all dropped significantly from their recession peaks. This bodes well for home prices because it helps fuel demand. When the employment rate rises, so does the level of housing demand. This puts upward pressure on home prices, especially at a time when inventories are shrinking.
The Sand States – Arizona, California, Nevada and Florida – still have a long way to go, in terms of housing and economic recovery. But they seem to be in a hurry to get there.