The latest results from the S&P/Case-Shiller Home Price Index were published on Tuesday. The data showed a continued slowdown in home-price gains nationwide, but an increase in nine of the 20 cities contained in the index.
Las Vegas and San Francisco were two of the housing markets where home prices rose from October to November. The monthly gains in these two cities were modest, but the annual gains are noteworthy. According to the index, home prices in Las Vegas rose 7.7% from November 2013 to November 2014 (the most recent data available). House values in San Francisco rose 8.9% during the same 12-month period.
What’s even more interesting is that both cities are expected to see significant gains in 2015 as well, according to at least one source. The economists at Zillow recently made the prediction that San Francisco home prices will rise 6.3% in 2015. Similarly, they predicted a 6.0% gain for the Las Vegas housing market over the next 12 months.
That puts these two real estate markets in a separate class from most other U.S. cities, where prices are only expected to rise between 0% and 3% during 2015.
Home prices in both Las Vegas and San Francisco rose by double digits in 2014, according to Zillow’s “Zestimate” calculation for median house values. It’s a supply-and-demand story, as always.
Higher-Than-Average Home Price Gains in San Francisco
What’s driving the big price predictions for San Francisco? What has made this such a hot real estate market in 2014, and going into 2015? In a word, inventory — or a lack thereof. Housing demand is high in the City by the Bay, but demand is limited. After all, it’s not the kind of city where you can throw up a new subdivision to support growing demand.
A few new residential construction projects in the city, such as the Lumina condo tower, will ease the inventory crunch somewhat. But the chances of there ever being an inventory surplus in San Francisco — or even a healthy balance — remain slim.
In the last 12 months alone, the number of homes listed for sale in the city on Realtor.com declined by 15%, according to recent data released by the company.
This is partly what accounts for the higher-than-average price predictions given to the San Francisco real estate market. It’s an extreme version of a classic supply-and-demand lesson. A lot of people want to buy, but not enough folks are selling. So prices move north.
Bold Predictions for Las Vegas Housing Market in 2015
Housing analysts also expect larger-than-average price gains in the Las Vegas real estate market this year. Zillow has forecast an increase of 6% over the next year. That’s a bit lower than their previous prediction of 8.4% for this metro area, but still higher than the national forecast.
Housing inventory is the big story here as well. According to Realtor.com, the total number of residential real estate listings in Vegas dropped by a whopping 38% over the last year or so. As a result, buyers are having a harder time finding properties and are offering more to land them.
Earlier this month, the Greater Las Vegas Association of Realtors (GLVAR) reported that the median sale price for the city climbed to $204,000 in December, an increase of 10.3% compared to December 2013.
According to GLVAR president Heidi Kasama, the area currently has a four-monthly supply of available homes, while a six-month supply is considered balanced. The city’s population, meanwhile, has risen steadily over the last few years. So here again, demand is outpacing supply and pushing home prices north.
Rest of the U.S. a Mixed Bag
The rest of the U.S. is a mixed bag, in terms of home price predictions. Some markets will likely remain flat in 2015, while others could see only modest gains over the coming months.
Call it a return to normalcy. House values plummeted nationwide during the housing crisis, flat-lined in the “basement” for a couple of years, and then began to recover at an uneven pace starting in 2010 and 2011. Now, we are once more seeing normal levels of home-price appreciation in most markets.
Nationwide, home prices are expected to rise by around 3% in 2015.
The Las Vegas and San Francisco real estate markets are anomalies, when viewed against this more modest backdrop.