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For Home Prices, The Rebound Effect is Over. Long

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 Rose a Modest 0.5% Month-Over-Month in January

Nationwide, asking prices on for-sale homes climbed 0.5% month-over-month in January, seasonally adjusted — the smallest monthly gain since August. Year-over-year, asking prices rose 7.5%, down from the 9.3% year-over-year increase in January 2014. Asking prices increased year-over-year in 94 of the 100 largest U.S. metros.

January 2015 Trulia Price Monitor Summary

% change in asking prices # of 100 largest metros with asking-price increases % change in asking prices, excluding foreclosures
 seasonally adjusted 0.5% N/A 0.7%
 seasonally adjusted 2.9% 82 3.4%
Year-over-year 7.5% 94 8.0%
Data from previous months are revised each month, so current data reported for previous months might differ from previously reported data.

The Rebound Effect is Over—Job Growth Drives Price Gains

The biggest home price increases are not necessarily in markets that had more severe housing busts. But the metros where home prices are now rising fastest are, almost without exception, the ones with faster job growth. Why? A growing economy fuels housing demand. Among the 10 metros with the biggest year-over-year price increases, nine had at least 2% year-over-year job growth. Only Detroit made the price growth top 10 despite tepid job gains. Plus, among these 10 metros with fastest price growth, four – Houston, Indianapolis, Denver, and Austin – had notably mild housing busts, with price declines from the peak of the bubble to the trough of the recession of less than 10%. Their price gains today don’t reflect a rebound after a sharp fall.

Where Asking Prices Increased Most in January

# U.S. Metro Y-o-Y % asking price change, Jan 2015 Y-o-Y % job growth Peak-to-trough price decline in housing bust
1 Atlanta, GA 16.2% 3.3% -26%
2 Cape Coral-Fort Myers, FL 15.4% 6.3% -56%
3 Deltona-Daytona Beach-Ormond Beach, FL 13.9% 2.3% -50%
4 Oakland, CA 13.8% 2.7% -39%
5 Houston, TX 13.8% 3.2% -4%
6 Indianapolis, IN 13.1% 2.0% -7%
7 Denver, CO 13.0% 3.7% -8%
8 North Port-Sarasota-Bradenton, FL 12.9% 4.3% -51%
9 Austin, TX 12.7% 4.0% -4%
10 Detroit, MI 12.6% 0.3% -40%
Note: among 100 largest metros. Job growth is as of 2014 Q2, from the Quarterly Census of Employment and Wages; peak-to-trough price decline is from the Federal Housing Finance Agency. To download the list of asking home price changes for the largest metros: Excel or PDF.

On the flip side, nearly all 10 markets with the slowest price gains (including six with declines) have had relatively sluggish job growth. Only Columbia, SC, had strong job growth but weak home price gains.

Where Asking Prices Decreased Most Or Increased Least in January

# U.S. Metro Y-o-Y % asking price change, Jan 2015 Y-o-Y % change in employment Peak-to-trough price decline in housing bust
1 Little Rock, AR -3.4% -0.1% -4%
2 Akron, OH -3.3% 1.6% -16%
3 Baltimore, MD -1.5% 0.6% -22%
4 Cleveland, OH -1.0% 0.3% -19%
5 Albany, NY -0.3% 0.6% -6%
6 Columbia, SC 0.0% 3.7% -12%
7 Winston-Salem, NC 0.6% 1.6% -10%
8 Allentown, PA 0.9% 1.3% -21%
9 Newark, NJ 0.9% 0.3% -19%
10 El Paso, TX 1.2% 1.4% -8%
Note: among 100 largest metros. Job growth is as of 2014 Q2, from the Quarterly Census of Employment and Wages; peak-to-trough price decline is from the Federal Housing Finance Agency. To download the list of asking home price changes for the largest metros: Excel or PDF.

Across all 100 largest metros, the relationship between job growth and home prices is strong. The correlation is 0.56 and statistically significant.

This isn’t new. Throughout the recovery, home prices have risen faster in markets with stronger job growth. What is notable is that the link between job growth and home prices is strengthening, as shown by the increasing statistical correlation between job growth and home prices (see chart below). But what’s really new is that the rebound effect has melted away. The correlation between the peak-to-trough price decline during the housing bubble and price changes in the recovery peaked in mid-2013 and has plunged since then. Now, the correlation between the peak-to-trough decline and the January 2015 year-over-year change is just 0.18, which isn’t statistically significant. (Nor is there a statistically significant relationship between the peak-to-trough declines and recent price gains after taking job growth into account.)

This is big news. For much of the recovery, the rebound effect was more closely tied to local price gains than job growth was. But today, things have reversed: Job growth is now much more important than the rebound effect. As home prices have increased and gotten close to long-term normal levels, and as investors and foreclosure sales have become a smaller part of housing activity, fundamental drivers of housing demand — like job growth—have taken over again.

Rents, Too, Are Rising Most Where the Job Growth Is

Nationwide, rents rose 6.5% year-over-year in January. The three large rental markets with the steepest rent increases – Denver, Oakland, and San Francisco – all have had job growth of 2% or more. In general, metros with faster job growth have larger rent increases, though some Sunbelt markets like Riverside-San Bernardino, Houston, and San Diego have had impressive job growth with more limited rent increases.

Rent Trends in the 25 Largest Rental Markets
# U.S. Metro Y-o-Y % change in rents, Jan 2015 Y-o-Y % change in employment
1 Denver, CO 14.2% 3.7%
2 Oakland, CA 12.1% 2.7%
3 San Francisco, CA 11.6% 4.5%
4 St. Louis, MO 10.1% 1.4%
5 Phoenix, AZ 10.0% 2.1%
6 Portland, OR 9.0% 2.9%
7 New York, NY 8.9% 2.3%
8 Baltimore, MD 8.3% 0.6%
9 Philadelphia, PA 8.3% 1.1%
10 Los Angeles, CA 7.5% 2.3%
11 Miami, FL 7.4% 2.5%
12 Tampa-St. Petersburg, FL 7.3% 2.4%
13 Cambridge-Newton-Framingham, MA 7.2% 1.5%
14 Orange County, CA 7.1% 2.0%
15 Chicago, IL 7.0% 1.9%
16 Newark, NJ 6.7% 0.3%
17 Atlanta, GA 6.6% 3.3%
18 Seattle, WA 6.4% 3.1%
19 Dallas, TX 6.2% 3.8%
20 Boston, MA 5.5% 1.7%
21 Riverside-San Bernardino, CA 4.5% 4.3%
22 Washington, DC 3.4% 0.3%
23 Minneapolis-St. Paul, MN 3.3% 1.7%
24 Houston, TX 3.2% 3.2%
25 San Diego, CA 3.2% 2.3%
Note: Job growth is as of 2014 Q2, from the Quarterly Census of Employment and Wages

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