Real Estate Data for the Rest of Us

Are We Past the Flipping Point?

House flipping activity tends to pick up as year-over-year price changes exceed 10 percent. Now that home prices have slowed in the recovery, even arms-length flips will become rarer.

Flipping is the practice of buying a house and reselling in a short period. Both professional and casual investors flip houses.  And like other asset trading, successful flipping involves buying at a discount, selling at a premium, or both—all of which is sensitive to changes in housing prices. We at Trulia Trends set out to explore at what point in the housing market price cycle flipping activity pick ups.

Selling houses at a premium generally requires price growth. The more prices are rising, the more profitable it is to flip. Thus, when prices are rising faster, flippers have greater opportunity to come out ahead. However, flipping activity can also accelerate when prices fall. That’s because foreclosures provide investors opportunities to get properties at discounted prices. To tease out how price increases affect flipping activity, we focus exclusively on nondistressed sales—transactions not involving foreclosures or short sales—of homes that had last sold within the previous 12 months.

YOYPriceChangeFlip-02

A chart of home-price-change and flip percentages nationwide from the first quarter of 2000 to the third quarter of 2014 shows flipping sped up as prices rose and slowed as prices fell. In the first quarter of 2000, flippers turned over about 4% of all U.S arm’s length transactions, that is, transactions in which the buyer and seller are independent parties. By the third quarter of 2005, the percentage of flips had increased to nearly 7% of all arm’s length transactions. Between these two quarters, year-over-year increases in the FHFA national house price index went from just over 6% to almost 11%. Then, as prices plunged during the housing crash, the percentage of flips fell in 2011 to a low of 2% of all arm’s length transactions.

To better understand flipping, we grouped average flips at the metro level between 2000 and 2014 by level of year-over-year price changes. We found the flipping point—the point at which flipping activity picks up—to be around 10% year-over-year price growth. Metros that experienced year-over-year price declines had flipping rates between 1% and 2%. By contrast, metros that had 10% or more price growth on average had flipping activity between 4% and 7%.

AverageFlips

 

But this is old news. What has happened with flipping lately? To get a current look, we plotted price changes and flip percentages for the 100 largest metros over the past year. We found a strong positive relationship. Metros with the highest flipping activity generally had above-average home price gains.

FlippingHotSpots

 

Six of the top 10 metros for flipping from the third quarter of 2013 to the third quarter of 2014 were in California. Nashville, Knoxville, Fort Lauderdale, and Cambridge-Newton-Framingham rounded out the list. Nearly all our top-ten flipper metros experienced above-median price gains in 2014 and most posted price growth near or above double digits. Still, we aren’t anywhere near the levels of frenzied flipping seen during the housing bubble, despite similar year-over-year price gains in many metros. All of the metros that registered year-over-year price growth above the critical 10% point had flipping activity around 3% to 4%. That’s on par with average flipping at that price growth range between 2000 and 2014—in other words, flipping is occurring at a historically normal rate. Moreover, we’re predicting slowing price growth in 2015 and flipping should moderate. You might say, we’re not expecting the housing market to flip out anytime soon!

Top 10 Metros With the Most Arms-Length Flips, 2013-2014

# U.S. Metro % Flips, 2013Q3 – 2014Q3 % YOY Price Change, 2013Q3 – 2014Q3
1 San Jose, CA 4.0% 11.1%
2 San Francisco, CA 3.8% 11.7%
3 Knoxville, TN 3.6% 3.2%
4 Bakersfield, CA 3.5% 10.9%
5 Nashville, TN 3.4% 8.2%
6 Orange County, CA 3.3% 8.2%
7 Fort Lauderdale, FL 3.3% 13.3%
8 Ventura County, CA 3.3% 9.3%
9 Cambridge-Newton-Framingham, MA 3.3% 5.8%
10 Riverside-San Bernardino, CA 3.3% 14.4%
Note: Median year-over-year price growth is 5.11%. Year-over-year price changes are calculated using the FHFA quarterly house price index.

Note on methodology:

We differentiate between two different types of property flips: a “traditional flip,” which is the purchase of a house at market rate and selling it at a higher market rate price, because of improvement to the property and/or rising prices; and a “clearance flip,” which is the purchase of a distressed house at a discount because of a forced sale, such as a foreclosure, followed by a resale at market rate. We do not include clearance flips in our measure of flipping since our goal is to estimate the relationship between prices and flipping in a relatively normal, non-distressed housing market. As a result, our definition of a flip is a property that sold twice in a twelve-month period, in which both transactions are considered arm’s length.

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Urban Headwinds, Suburban Tailwinds

Although home prices are rising faster in urban neighborhoods, population is growing faster in suburban neighborhoods. Consumer preferences and the aging of the population are tailwinds for suburban growth; so are falling oil prices if they stay low long-term.

Jed Kolko, Chief Economist
January 22, 2015

How fast have cities and suburbs grown recently? During last decade’s housing bubble, suburbs and rural areas grew much faster than cities. But briefly, early in the housing recovery, it looked like the long suburbanization of America might go into reverse. For a moment in 2011, urban counties grew faster than suburban and rural counties. Since then, old patterns have returned. Suburbs are now gaining population faster than urban neighborhoods, even though home prices are rising faster in cities than in suburbs. And the trend seems likely to continue. Trulia’s latest consumer survey and projected demographic shifts point to future headwinds for urban growth.

To compare cities and suburbs, we classify individual neighborhoods as urban or suburban based on whether or not most households live in detached single-family homes (see note on methods and data sources). This definition better reflects how residents describe their neighborhoods than do official city boundaries. That’s because many neighborhoods within big-city limits consist overwhelmingly of single-family homes and feel more suburban than urban.

Prices Rising Faster in Cities, but Population Growing Faster in Suburbs

In the recovery, the home-price rebound has been stronger in urban neighborhoods. Most of the overbuilding during last decade’s bubble involved single-family suburban homes, and the single-family vacancy rate remains elevated. Comparing urban and suburban neighborhoods in the 100 largest metros over the past four years, urban home prices have consistently risen faster, or fallen less, than prices in suburbs. And, for the year 2014, the urban median asking price per square foot rose 8.1% versus a 5.7% gain in suburban neighborhoods.

HomePriceGrowth

However, during most of this period, suburban population growth has been faster than urban growth. In 2014, suburbs grew 0.96% and cities 0.85%, according to Postal Service data on occupied homes receiving mail. That’s not a huge difference, but it continues the trend of suburbs outpacing urban areas.

PopulationGrowth

How can prices rise faster in urban neighborhoods even as suburbs lead in population growth? One reason is that most new construction takes place outside urban neighborhoods. Cities have less open land, and often more onerous regulations limiting new construction. It’s true that in 2014 multiunit buildings—typically located in urban neighborhoods—accounted for the highest share of overall construction since 1973. Still, in urban neighborhoods, fewer new units are built relative to the size of the housing stock. Limited construction holds back urban population growth and worsens urban affordability, even when—as rising prices show—housing demand in cities is strong. But what does the future hold?

Dreaming of the Suburbs and Beyond

In November, Trulia asked more than 2,000 American adults whether they lived in an urban, suburban, or rural area, and where they wanted to live in five years. We didn’t define urban, suburban, and rural, but instead left them open to interpretation. (See note.) Rural areas were the winner. Just 21% of respondents said they were rural residents, but 28% said they would like to be living in a rural area in five years.

LiveWantSurvey

Urban residents feel the tug of the suburbs. For every 10 suburbanites who said they wanted to live in an urban area in five years, 16 urban dwellers said they wished to live in the suburbs. Even among young adults aged 18-34— who are more likely to live in urban areas than older adults are—more wanted to move from city to suburbs than the other way around, though the sample size was small.

To put it another way: Urban residents were the least likely to want to live in a similar area in five years. Two-thirds (67%) of urbanites wanted to live in an urban area in five years, compared with 80% of suburbanites and 83% of rural residents who wanted to live in areas like where they were.

Urban living generally declines with age, which partly explains why people are less likely to want to live in cities in five years. But will the large millennial generation give urban areas a sustained boost? In other words, will the U.S. population’s changing age profile be a tailwind or headwind for cities?

The Demographic Urban Headwind

Today, urban neighborhoods are getting a demographic jolt. The largest segment of the big millennial group—folks in their early 20s—are entering the peak age for urban living. Some 26% of 22-24 year-olds live in urban neighborhoods, rising to 27% for 25-29 year-olds. Older people are far less likely to live in urban neighborhoods. Just 17% of the largest segment of baby boomers—those in their early 50s—live in such neighborhoods, a third lower than the share of early twentysomethings.

Comparing the 2009-2013 period with 2000, city living held up for people aged 25-44. Meanwhile, the share of adults 18-24 living in urban neighborhoods declined because they became more likely to live with their parents. But the most dramatic change in urban demographics concerned older adults. People age 45 and older were less likely to live in urban neighborhoods in 2009-2013 than in 2000. And the share of seniors in their 70s and early 80s living in urban neighborhoods fell more than 10 percent. In fact, for decades, seniors have become more likely to live in single-family homes. Increasingly, cities may be for the young. But that’s because oldsters are getting less urban, not because youngsters are getting more so.

AgeUrbanComparison

What then will happen as the two largest groups age—those in their early 20s and those in their early 50s? As millennials get older, many will follow a familiar path: They’ll partner up, have kids, and move to the suburbs. Urban living starts to decline after ages 25-29 and drops to its lowest level at ages 65-69. On the other hand, the baby boomer leading edge is nudging 70, when urban living starts to rise again. The return of older boomers to cities will offset some of the millennial suburban migration.

Nevertheless, the aging population is overall a slight headwind for cities. Suppose the propensity of each age group for urban living remains at 2009-2013 levels. In that case, over the next few decades, the changing age distribution projected by the Census Bureau would lead to a slow, but steady decline in the share of adults living in urban neighborhoods. To be sure, the decline will probably be small—around a tenth of a percentage point per decade. Still, it suggests that aging boomers returning to cities might not fill all the homes suburbanizing millennials leave behind.

What could boost urban growth? For starters, more construction in city neighborhoods. That would allow higher urban population growth, while slowing price increases. Also, higher energy prices would encourage people to live closer to work and in smaller homes. By the same token, the recent drop in oil prices, if sustained, would have the opposite effect, becoming yet another tailwind for suburbs and headwind for cities. Finally, cultural attitudes could shift in favor of renting and urban living. But is that likely? Today, the vast majority of young renters aspire to own. Homeownership remains core to the American Dream. The future of the suburbs looks bright.

Notes:

To compare “city” versus “suburb,” we classify neighborhoods as urban or suburban based on how dense or spread out the housing is, as we have done in previous Trulia Trends posts. Using Census data, we define urban neighborhoods as ZIP codes (technically, ZCTAs — ZIP Code Tabulation Areas) where a majority of the housing is apartments, attached townhouses, or other multi-unit buildings; suburban neighborhoods are those where a majority of the housing is single-family detached houses. We used this methodology rather than simply identifying the biggest city in a metro as “urban” and treating the rest of the metro as the “suburbs,” as other reports on cities-versus-suburbs often do. The problem with using city boundaries is that many neighborhoods outside of the biggest city are actually much more urban than some neighborhoods within a city’s boundary. For instance, our definition classifies Hoboken, NJ, Central Square in Cambridge, MA, and Santa Monica – which are all very dense – as urban neighborhoods, even though they’re outside the city boundaries of New York, Boston, and Los Angeles, respectively.

The urban vs. suburban comparisons of prices and population growth cover the 100 largest metros, with individual ZIP codes classified as urban or suburban. Price changes are year-end year-over-year changes in median asking price per square foot of homes listed on Trulia. Population changes are the year-end year-over-year change in the U.S. Postal Service’s count of addresses receiving mail, reported monthly by ZIP code.

The consumer data is based on a survey of 2,008 American adults conducted for Trulia on November 6-10, 2014, by Harris Interactive. Respondents were asked whether they lived in an urban, suburban, or rural area, without being provided a definition. Self-reported urban locations aligned better with our housing-stock-based definition of urban versus suburban than with official city boundaries, though race, for instance, had a statistically significant relationship with self-reported neighborhood urban classification, even after accounting for the housing stock, household density, and city population.

Data on urban residence by age group is based on the ZCTA population as reported in the 2000 decennial Census and the 2013 five-year American Community Survey, covering the years 2009–2013. Population projections by single year of age from 2014 to 2060 are also from the Census Bureau.

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Housing Barometer: Improvement on All Fronts in 2014

All five measures of the Housing Barometer improved over the past year. The indicator that the recovery now most depends on—young-adult employment—made the largest leap, but is still not quite halfway back to normal.

Jed Kolko, Chief Economist
January 15, 2015

How We Track This Uneven Recovery

Since February 2012, Trulia’s Housing Barometer has charted how quickly the housing market is returning to “normal” based on several indicators. The recovery is uneven and some housing activities are improving faster than others. Our Barometer highlights five measures:

  1. Existing home sales, excluding distressed sales (National Association of Realtors, NAR).
  2. Home-price levels relative to fundamentals (Trulia Bubble Watch).
  3. Delinquency plus foreclosure rate (Black Knight, formerly LPS).
  4. New construction starts (Census).
  5. The employment rate for 25-34 year-olds, a key age group for household formation and first-time homeownership (Bureau of Labor Statistics, BLS).

Home prices from our Bubble Watch are reported quarterly. The other four measures come out monthly. To reduce the volatility of these measures, we use three-month moving averages, that is, the average over the past three months recalculated each month. For each indicator, we compare the latest data with its worst reading during the housing bust and its pre-bubble normal level.

Housing Barometer-01 011315

Most Barometer Measures are Three-Quarters Back to Normal

All five Housing Barometer indicators made good progress over the past year and also improved from the previous quarter. Employment among young adults—which had been the laggard indicator—posted the largest gain. Prices and the delinquency plus foreclosure rate also took big steps toward normal.

Housing Indicators: How Far Back to Normal?

Now One quarter ago One year ago
Existing home sales, excl. distressed 82% 80% 73%
Home price level 82% 73% 66%
Delinquency + foreclosure rate 76% 74% 59%
New construction starts 53% 49% 46%
Employment rate, 25-34 year-olds 46% 39% 26%
Note: For each indicator, we compare the latest available data to its worst reading during the housing bust and its pre-bubble normal level.
  • Existing home sales, excluding distressed, were 82% back to normal in November, up slightly from 80% one quarter ago and 73% one year ago. Foreclosure and short sales declined, and nondistressed sales rose 8% year-over-year in November. However, new home sales continued to lag. As a result, existing home sales dominated the market even more than usual. The ratio of existing to new home sales was 11 to 1—well above the long-term normal ratio of 6 to 1.
  • Home prices moved closer to normal. Nationally, prices were just 2.4% undervalued in the fourth quarter of 2014, according to Trulia’s Bubble Watch. That compares with 13.5% undervalued at the worst of the housing bust. Prices are now four-fifths of the way back to normal, that is, the level at which they’re neither over- nor undervalued. At the local level too, prices are nearing normal. Seventy of the 100 largest metros are now less than 10% over- or undervalued—the highest number since the recovery began.
  • The delinquency plus foreclosure rate was 76% back to normal in November, up considerably from 59% one year ago. Fewer borrowers are at risk of delinquency as the share declines of homeowners who are underwater—those who owe more on their homes than the properties are worth.
  • New construction starts are 53% back to normal, the same as one quarter ago and up from 46% one year ago. In 2014, through November, multiunit construction accounted for 34% of all new home starts—the highest share for any year since 1973. Multiunit starts are booming and should end 2014 at the highest level since 1988. At the same time though, single-family starts are running far below pre-bust levels. As a result, starts overall are just past halfway back to normal, lagging behind the recoveries in sales, prices, and the delinquency plus foreclosure rate.
  • Employment for young adults leapt ahead in the past year: finally, the youngsters are finding work. The three-month average in December showed that 76.3% of adults age 25-34 were employed. At 46% back to normal, that’s near the halfway mark. Young adults need jobs in order to move out of their parents’ homes, form their own households, and eventually become homeowners. For those reasons, the housing recovery depends on millennials getting jobs. Among 25-34 year-olds, just 12% who are employed live with their parents versus 21% of those who aren’t collecting a paycheck.

How much longer will the recovery take? It will depend on the two lagging measures—construction starts and young-adult jobs. While multiunit starts have roared back, single-family construction is being restrained by low household formation and a still-elevated vacancy rate. Those young adults who took jobs in the past year aren’t yet buying single-family homes. It typically takes years to save for a down payment and build up an income history. So those who got hired last year—or who will find work this year—won’t be buying homes for several years to come. Affordability is an especially big challenge for young adults. Prices are rising faster than incomes and millennials are clustering in less-affordable markets where buying is further out of their reach. Despite progress, the recovery lurches ahead unevenly and still has a way to go.

NOTE: Trulia’s Housing Barometer tracks five measures: existing home sales excluding distressed (NAR), home prices (Trulia Bubble Watch), delinquency + foreclosure rate (Black Knight), new home starts (Census), and the employment rate for 25-34 year-olds (BLS). Also, our estimate of the normal share of sales that are distressed is 5%; Black Knight reports that the share was in the 3-5% range during the bubble. For each measure, we compare the latest available data to (1) the worst reading for that indicator during the housing bust and (2) its pre-bubble normal level. We use a three-month average to smooth volatility for the four indicators that are reported monthly (all but home prices). The latest data are from December for the employment rate; November for existing home sales, new construction starts, and the delinquency + foreclosure rate; and the fourth quarter for home prices.

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Bubble Watch: Home Prices Still 2% Undervalued and Slowing Toward Smooth Landing

Relative to fundamentals, home prices nationally looked 2% undervalued in the fourth quarter of 2014. Home prices in 70 of the 100 largest metros are less than 10% over- or undervalued. That’s the highest number of markets close to local long-term fundamentals since the recovery began, and a sign that the housing market is becoming more stable and healthy.

Jed Kolko, Chief Economist
January 14, 2015

Trulia’s Bubble Watch shows whether home prices are overvalued or undervalued relative to fundamentals by comparing prices today with historical prices, incomes, and rents. The more prices are overvalued, the greater the chance that a bubble might be forming. Sharply rising prices aren’t necessarily a sign of a bubble. By definition, a bubble develops when prices look high relative to fundamentals.

Bubble watching is as much an art as a science because there’s no definitive measure of fundamental value. To try to put numbers on it, we look at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends. We use multiple data sources, including the Trulia Price Monitor as a leading indicator of where home prices are heading. We combine these measures of fundamental value rather than relying on a single factor because no one measure is perfect. Trulia’s first Bubble Watch report, from May 2013, explains our methodology. This FAQ gives more detail for interpreting the results. Here’s what we found this quarter.

Home Prices 2% Undervalued Nationally

We estimate that home prices nationally were 2% undervalued in the fourth quarter of 2014. In the first quarter of 2006, at the height of the past decade’s housing bubble, home prices soared to 34% overvalued before dropping to 14% undervalued in the first quarter of 2012. One year ago, in the fourth quarter of 2013, prices looked 5% undervalued. This chart shows how far current prices are from a bubble:

bubblewatch-01

Eight of the Ten Most Overvalued Markets are in California and Texas

The most overvalued market is now Austin, at 16%, followed by Orange County and Los Angeles in Southern California. Nine of the 100 largest metros are 10% or more overvalued. Miami, the 10th most overvalued metro, rounds up to 10%, but is actually a hair below that level.

Top 10 Metros Where Home Prices Are Most Overvalued

# U.S. Metro Home prices relative to fundamentals,  2014 Q4 Home prices relative to fundamentals,  2006 Q1 Year-over-year change in asking prices, Dec 2014
1 Austin, TX +16% +2% 12.2%
2 Orange County, CA +15% +65% 6.1%
3 Los Angeles, CA +13% +73% 7.0%
4 Honolulu, HI +13% +37% 5.4%
5 San Francisco, CA +12% +47% 9.5%
6 Riverside-San Bernardino, CA +12% +87% 11.0%
7 San Jose, CA +12% +53% 8.4%
8 Oakland, CA +10% +68% 14.5%
9 Houston, TX +10% +1% 13.4%
10 Miami, FL +10% +76% 11.9%
Note: Among the 100 largest metros. Positive numbers indicate overvalued prices, negative numbers undervalued. Click here to see the price valuation for all 100 metros: Excel or PDF.

All of the most undervalued metros today are in the Midwest and New England, led by Cleveland and Akron. But some of the most undervalued metros have recently had double-digit price increases, including Lake-Kenosha Counties (just north of Chicago), Toledo, and Detroit.

Top 10 Metros Where Home Prices Are Most Undervalued

# U.S. Metro Home prices relative to fundamentals, 2014 Q4 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, Dec 2014
1 Cleveland, OH -20% +13% 1.8%
2 Akron, OH -17% +12% 0.6%
3 Dayton, OH -17% +8% 4.9%
4 Lake-Kenosha Counties, IL-WI -16% +25% 12.7%
5 New Haven, CT -16% +32% 2.6%
6 Toledo, OH -15% +16% 10.2%
7 Hartford, CT -15% +20% 3.7%
8 Fairfield County, CT -14% +30% 1.0%
9 Worcester, MA -14% +39% 2.0%
10 Detroit, MI -14% +33% 12.9%
Note: Among the 100 largest metros. Positive numbers indicate overvalued prices, negative numbers undervalued. Click here to see the price valuation for all 100 metros: Excel or PDF.

bubble metro map

Today’s most overvalued markets are generally less affordable than the most undervalued markets. Nevertheless, overvaluation and undervaluation aren’t necessarily the same as affordability. Our valuation measure looks at local prices relative to what’s normal historically in each local market. Right now, New York and Boston both look several percentage points undervalued relative to long-term fundamentals, even though they’re far more expensive than Houston or Austin on a price-per-square-foot basis. What’s more, in the past, extremely affordable markets such as Detroit sometimes looked overvalued relative to local fundamentals, while very expensive markets such as San Francisco looked undervalued.

Prices Look Healthier Than At Any Point in Recovery

As of the fourth quarter of 2014, prices in 70 of the 100 largest metros were within 10% of fundamentals—that is, they were neither overvalued nor undervalued by more than 10%. Among the 100 largest metros, only nine were overvalued by more than 10%, and 21 were undervalued by more than 10%. The number of markets within 10% of fundamentals is at its highest level since prices hit bottom in early 2012.

MetroBubbleCount2

Even better, home prices may be leveling off in healthy territory—in other words, without the national housing market moving back into bubble range. In 2006, nearly half of large metros were more than 30% overvalued. No large metro comes close to that degree of overvaluation today. Prices increases are slowing nationally, well before a bubble has formed. The trend is visible in most metros, particularly those that had the most severe housing bust in the past decade and unsustainably fast price rebounds more recently. And we expect price increases to keep slowing in 2015. Bubble-watchers can continue to rest easy.

Notes:

Each quarter’s Bubble Watch includes revisions to previous estimates because the underlying data are often revised or updated. To compare the national or metro trend over time, look at the current report’s historical numbers, not previously reported numbers.

This post uses a newer set of metropolitan area definitions than previous Bubble Watch analyses. This FAQ provides the details.

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What Falling Oil Prices Mean for Home Prices

The recent plunge in oil prices could cause home prices to slip in the oil-producing markets of Texas, Oklahoma, Louisiana, and elsewhere. But it typically takes two years for oil prices to fully affect home prices in those markets. At the same time, lower oil prices could boost home values in the Northeast and Midwest.

Jed Kolko, Chief Economist
January 8, 2015

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of housing price and rent trends nationally and locally. They adjust for the changing mix of listed homes and show what’s really happening to asking prices and rents. Asking prices lead sales prices by approximately two or more months. As a result, the Monitors reveal trends before other price indexes do. Here then is the scoop on where prices and rents are headed.

Asking Prices Slowed in December, Rising 0.5% Month-Over-Month

Nationwide, asking prices on for-sale homes were up 0.5% month-over-month in December, seasonally adjusted — a slowdown after larger increases in September, October, and November. Year-over-year, asking prices rose 7.7%, down from the 9.5% year-over-year increase in December 2013. Asking prices increased year-over-year in 97 of the 100 largest U.S. metros.

December 2014 Trulia Price Monitor Summary
% change in asking prices # of 100 largest metros with asking-price increases % change in asking prices, excluding foreclosures
Month-over-month,
seasonally adjusted
0.5% N/A 0.7%
Quarter-over-quarter,
seasonally adjusted
3.4% 87 3.7%
Year-over-year 7.7% 97 8.1%
Data from previous months are revised each month, so current data reported for previous months might differ from previously reported data.

Where and When Falling Oil Prices Will Hurt — Or Help — Home Prices

Four of the five markets where asking prices rose most year-over-year are in the South, including Atlanta, Cape Coral-Fort Myers, North Port-Sarasota-Bradenton, and Deltona-Daytona Beach-Ormond Beach. Of the top 10, four are in the Midwest, including Cincinnati, Detroit, Lake-Kenosha Counties, and Indianapolis. Among markets with the largest asking price increases, Houston stands out for having a large local oil industry, accounting for 5.6% of jobs there.

 

  Where Prices Increased Most in December
# U.S. Metro Y-o-Y % asking price change, Dec 2014 % of jobs in oil-related industries
1 Atlanta, GA 15.9% 0.3%
2 Cape Coral-Fort Myers, FL 15.5% 0.1%
3 North Port-Sarasota-Bradenton, FL 15.0% 0.1%
4 Cincinnati, OH 14.8% 0.1%
5 Deltona-Daytona Beach-Ormond Beach, FL 14.7% 0.1%
6 Oakland, CA 14.5% 0.4%
7 Houston, TX 13.4% 5.6%
8 Detroit, MI 12.9% 0.6%
9 Lake-Kenosha Counties, IL-WI 12.7% 0.1%
10 Indianapolis, IN 12.6% 0.2%
Note: among 100 largest metros. Employment in oil-related industries is from County Business Patterns, 2012 (see note at end of post). To download the list of asking home price changes for the largest metros: Excel or PDF.

metro map dec 2014

Only Bakersfield and Baton Rouge have an even higher employment share in oil-related industries than Houston. Oklahoma City, Tulsa, New Orleans, and Fort Worth round out the seven large metros where oil-related industries account for at least 2% of employment. It’s not until you look at smaller metros that you find oil-related industries representing a larger employment share. In Williston, ND, and Midland, TX, they account for almost 30% of local jobs.

oil country map dec 2014

On average, in the seven large metros where oil-related jobs are at least 2% of the total, home prices rose 10.5% year-over-year — faster than the 7.7% increase for the 100 largest metros overall.

Home Price Changes in Top Oil-Employment Markets
# U.S. Metro Y-o-Y % asking price change, Dec 2014 % of jobs in oil-related industries
1 Bakersfield, CA 12.4% 6.9%
2 Baton Rouge, LA 3.0% 6.1%
3 Houston, TX 13.4% 5.6%
4 Oklahoma City, OK 6.3% 4.3%
5 Tulsa, OK 10.1% 3.7%
6 New Orleans, LA 7.3% 2.6%
7 Fort Worth, TX 10.2% 2.5%
8 Gary, IN 7.3% 1.8%
9 Wichita, KS 5.3% 1.4%
10 Toledo, OH 10.2% 1.0%
Note: among 100 largest metros. Employment in oil-related industries is from County Business Patterns, 2012 (see note at end of post).

Oil prices have plunged from over $100/barrel in July 2014 to around $50/barrel in early January 2015, threatening oil-producing economies around the world. Within the U.S., big oil price drops have historically been associated with job losses and falling home prices in energy-producing regions. In particular, plummeting oil prices in the 1980s were followed by declines in employment and home prices in Houston, Oklahoma City, Tulsa, New Orleans, and other nearby markets.

We looked at year-over-year trends in oil prices, jobs, and home prices from 1980 to the present in the 100 largest metros and found that:

  1. In oil-producing markets, home prices tend to follow oil prices, but with a lag. For instance, in the 1980s, the largest year-over-year oil price declines were in early- and mid-1986. In Houston, job losses were steepest in late 1986. But home prices didn’t slide most until the third quarter of 1987. Since 1980, employment in oil-producing markets has followed oil-price movements roughly two quarters later and home prices have followed oil-price movements roughly two years later.
  2. While home prices and oil prices move in the same direction in oil-producing markets, they tend to move in the opposite direction in many other markets. Cheaper oil lowers the costs of driving, heating a home, and other activities, boosting local economies outside oil-producing regions. In the Northeast and Midwest especially, home prices tend to rise after oil prices fall. The specific markets where home prices get the biggest jolt depend on which years we analyze.

This history offers three lessons for today’s housing market. First, any negative impact of falling oil prices on home prices should be concentrated in oil-producing markets in Texas, Oklahoma, Louisiana, and other places with large oil-related industries. Second, in these markets, oil prices won’t tank home prices immediately. Rather, falling oil prices in the second half of 2014 might not have their biggest impact on home prices until late 2015 or in 2016. Third, falling oil prices will probably help local economies and home prices in markets that lack oil-related industries.

Rental Affordability Toughest in Miami, Los Angeles, and New York

Nationwide, rents rose 6.1% year-over-year in December. The least affordable rental markets are Miami, Los Angeles, and New York, where median rent for a two-bedroom unit eats up more than half of the local average wage. Rents are rising faster than the national average in the markets that are already the least affordable. The most affordable large rental markets are St. Louis, Phoenix, and Houston. Although Denver had the largest year-over-year increases, Denver rentals remain more affordable than those in most of the big coastal markets.

Rent Trends in the 25 Largest Rental Markets
# U.S. Metro Y-o-Y % change in rents, Dec 2014 Median rent for 2-bedroom, Dec 2014 Median rent for 2-bedroom as share of average local wage
1 Miami, FL 7.4% 2300 57%
2 Los Angeles, CA 7.0% 2450 53%
3 New York, NY 9.3% 3200 52%
4 Oakland, CA 11.6% 2400 45%
5 San Francisco, CA 10.8% 3600 45%
6 Riverside-San Bernardino, CA 5.0% 1500 44%
7 Orange County, CA 7.4% 2050 44%
8 San Diego, CA 4.1% 1950 42%
9 Cambridge-Newton-Framingham, MA 6.8% 2250 39%
10 Boston, MA 4.3% 2300 39%
11 Newark, NJ 7.1% 2100 37%
12 Chicago, IL 6.0% 1750 37%
13 Baltimore, MD 8.7% 1550 35%
14 Washington, DC 2.9% 2000 34%
15 Denver, CO 14.1% 1500 31%
16 Philadelphia, PA 7.5% 1500 31%
17 Seattle, WA 6.1% 1700 31%
18 Portland, OR 8.8% 1300 30%
19 Tampa-St. Petersburg, FL 7.5% 1100 29%
20 Dallas, TX 5.4% 1400 29%
21 Atlanta, GA 5.9% 1250 28%
22 Minneapolis-St. Paul, MN 3.2% 1300 28%
23 Houston, TX 3.1% 1400 27%
24 Phoenix, AZ 8.6% 1050 26%
25 St. Louis, MO 8.5% 900 22%
Note: average local wage is from the Quarterly Census of Employment and Wages for the year up to 2014 Q2.

The next Price and Rent Monitors are scheduled to be released on Tuesday, February 10.

Notes:

The share of jobs in oil-related industries is based on County Business Patterns, 2012. Oil-related industries include NAICS codes 211, 213111, 213112, 2212, 23712, 32411, 333132, 4247, 4861, 4862,and 48691; these cover oil and gas extraction, drilling, support operations, refineries, machinery construction, pipeline construction, and pipeline transportation. Nationally, 0.9% of jobs are in these oil-related industries. For counties where the exact industry employment level was suppressed for confidentiality reasons, we estimated employment based on the establishment size distribution.

To estimate the relationship among trends in oil prices, employment, and home prices, we identified the lags that yielded the highest correlations between the time series for individual metros. Because the results are sensitive to the time period analyzed and other assumptions, we are reporting only the broad results that hold under various assumptions.

This post (and future Trulia Trends posts) uses new government metropolitan area definitions, as explained in this FAQ.

The Trulia Price Monitor and the Trulia Rent Monitor track asking home prices and rents on a monthly basis, adjusting for the changing composition of listed homes, including foreclosures provided by RealtyTrac. The Trulia Price Monitor also accounts for regular seasonal fluctuations in asking prices in order to reveal underlying price trends. The Monitors can detect price movements at least three months before the major sales-price indexes. Historical data are revised monthly. Thus, historical data presented in the current release are the best comparison with current data. Our FAQs provide the technical details.

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