With annualized sales and price appreciation reports blowing away the early forecasts for 2015 and putting smiles on the faces of professionals and real estate consumers alike, is there reason to worry that there’s a major downturn lurking around the corner?

Clear Capital’s vice president of research and analytics Alex Villacorta, a fearless contrarian who called Florida’s investor-driven recovery in 2010 (see Figuring Out Florida) and last season’s surprising slump (Clear Capital: Spring Never Quite Spring), has new warnings about the balance of 2015.

“With a first full look of the spring buying season and six-month update to the forecast, our data through June confirms our initial projection that 2015 would be a non-growth year,” says Villacorta.

“In January 2015, we forecasted total 2015 national growth would come in at 1.3 percent, more than five percentage points from where we ended 2014 at 6.7 percent national growth. Here we are six months later, and there is very little evidence to change our view that the year will end up with price growth coming in just around the rate of inflation. Our adjusted forecast calls for year-end national growth of 2.6 percent, falling within our initial projected range of between 1 to 3 percent,” he said

That’s below most every other initial forecast for the year, most of which have been updated in light pf spring sales.  Fannie’s forecast now puts prices up 4.6 percent on the year, Freddie up 4.5 percent, CoreLogic 5.3 percent.  Is Clear Capital a voice in the wilderness once again, or a skunk at the picnic.

Villacorta’s analysis begins with California’s hottest hot spots.  Even though San Francisco’s and San Jose’s year-end growth rates are projected to remain positive, at 3.4 percent and 3.2 percent, he forecasts price growth for both regions through the second half of 2015 to fall into negative territory, at -0.2 percent and -0.4 percent.

“This is especially concerning after the summer buying season and two years of consecutive, yet unsustainable, gains,” he said.

At regional levesl, he sees  growth across all regions remaining flat. To date, he reports Midwest saw an increase in quarterly growth, from 0.1 percent to 0.3 percent, and in terms of price growth the West continues to be strongest at 1 percent quarterly growth.

The West is projected to end 2015 at an underwhelming 3.3 percent growth rate, reducing the disparity between East and West. While growth in the East is forecasted to stagnate through the remainder of 2015 at 0.1 percent, it is projected to end the year at a modest 1 percent. Growth rates for the two regions are forecasted to be even more similar a year from now. According to Clear Capital’s one-year forecast, the East is forecasted to virtually standstill at 0.1 percent growth year-over-year, while the West is projected to fall below, bottoming out at an estimated 0 percent year-over-year.

Nationally, it’s more of the same. Data through June looks similar to data through May 2015, with no change in quarterly growth at 0.6 percent and a slight drop of 0.1 percent in yearly growth, from 5.3 percent to 5.2 percent. If you believe the spring and summer seasons reflect the peak of the housing demand cycle, 0.6 percent quarterly growth is a foreboding sign of how the remainder of 2015 may play out.

“In our June report, we went on record with concern of bubble markets across the U.S. Now San Jose is starting to go the way of San Francisco, at peak levels and now leveling off. Both San Francisco and San Jose have been red hot markets, supported in large part by strong job growth. The latest numbers reveal, however, that both markets have reached their apex in the most recent upward price swing and are projected to take a slight dip into negative territory through the second half of 2015, by -0.2 percent and -0.4 percent. While both markets are projected to have total 2015 yearly growth rates of around 3 percent, entering winter 2015-2016 on the down side is of great concern. What started as ‘red hot’ at the start of 2014 may end as ‘in the red’ come 2016,” said Villacorta.

 

National and Regional Markets
Market		Qtr/Qtr	Yr/Yr	Distressed Saturation	Six Month Forecast	2015 Year End Forecast
National		0.6%	5.2%	16.6%	0.6%	2.6%
West		1.0%	7.0%	11.6%	0.3%	3.3%
Northeast		0.2%	2.4%	15.6%	0.1%	1.0%
South		0.8%	5.7%	19.8%	1.0%	3.4%
Midwest		0.3%	4.8%	20.1%	0.7%	1.9%
Chart 1: National and Regional Markets – Through June 2015. Source Clear Capital®