Prices Cooling in Hottest Housing Markets, Like Las Vegas and Phoenix

Real estate markets in the “Sand States” of California, Arizona and Nevada got hammered by price erosion during the housing crash. Now they’re rebounding quickly — too quickly, some people fear. There has been much talk about price bubbles in hot housing markets like Phoenix, Las Vegas and Oakland.

But new data reported by Trulia show that home prices are now cooling in many of the hottest housing markets across the country.

Smaller Price Gains in Hottest Housing Markets

Trulia’s Price Monitor tracks housing conditions, including prices, in 100 of the largest metropolitan areas in the country. In July of this year, home prices were up (quarter over quarter) in 97 of those 100 metro areas. So prices are clearly still rising across the country. But they are rising at a slower pace than before, and that’s the notable trend here.

In 64 of those 100 metro areas, the quarterly increase in home prices for July was lower than the quarterly gains recorded in April.

Why is this important? Because a lot of analysts have been using the dreaded ‘B’ word lately, when discussing the hottest housing markets in the country. They’ve been talking about bubbles. So any signs of leveling come as welcomed news to these folks. And that’s what prices appear to be doing in some of the hot markets, like Sacramento, Las Vegas and Oakland.

Case Study: Sacramento, Las Vegas and Oakland

Consider, for example, the three U.S. real estate markets with the largest annual price gains. According to the Trulia Price Monitor, Sacramento, Las Vegas and Oakland (Sand State markets) have had annual price gains of more than 30%. From July 2012 to July 2013, home prices rose by 33.7% in Sacramento, 32.9% in Las Vegas, and 31.0% in Oakland.

But the quarterly gains are getting smaller in all three of these housing markets:

  • In Sacramento, the quarter-over-quarter (Q-o-Q) price gain was 10.2% when measured in April. In July, the Q-o-Q gain had fallen to 6.8%.
  • In Las Vegas, the Q-o-Q gain dropped from 12.7% in April to 7.5% in July.
  • In Oakland, it fell from 10.8% to 7.2% during the same reporting periods.

That’s not to say these three housing markets represent the entire country. Clearly they do not. But they are some of the most “bubble-ish” markets where home prices are concerned. The Las Vegas and Phoenix real estate markets, in particular, have been causing concern among real estate analysts and housing economists.

Consider this excerpt from a Bloomberg article published on Tuesday:

“Bubbles are inflating in Nevada and Arizona even as housing in the rest of the country recovers at a more sustainable pace. Gains in the two desert cities are the biggest since the height of the real estate boom…”

Homeowners in these hot markets want to see prices go up, up and away. Economists want to see sustainable, realistic appreciation. Trulia’s recent report gives hope to those fearful of bubbles.

Price Gains Accelerating in Detroit, Atlanta

In contrast to the cooling real estate markets of Las Vegas and Phoenix, we have Detroit and Atlanta. These two cities were also hit hard by the foreclosure and housing crisis. Detroit had a double-whammy resulting from massive layoffs in the auto industry. But now, home prices are rising quickly in these two markets.

The Q-o-Q price gains rose by more than three percentage points in Detroit and Atlanta, between the April and July readings. Detroit’s Q-o-Q price gain went from 4.7% in April to 8.3% in July. Atlanta’s rose from 2.2% to 5.4% during the same time frame. So home-price appreciation seems to be accelerating in these two housing markets.

According to Jed Kolko, chief economist at Trulia:

“Overall, the West Coast – where prices have rebounded strongly already – is seeing a price slowdown, while many metros in the South and Midwest are seeing price gains accelerate.”

It reinforces a point we have made in the past. There is no such thing as “the” housing market anymore. Ever since the recession, we have seen an increased trend toward segmentation and regionalization, where home-price trends are concerned.