Home prices are beginning to rise after a six-year slump in cities from San Francisco and Seattle to Miami with jobs and lifestyles that appeal to younger and affluent buyers.
“A number of the cities that have done the best have been glamour cities,” Robert Shiller, an economics professor at Yale University and co-creator of the S&P/Case-Shiller property-value indexes, said yesterday in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene. “People have this speculative fervor. It comes back.”
A tight supply of homes and an increase in affordability fueled by record-low mortgage rates are helping shore up some regional markets where values plunged during the recession. San Francisco’s home prices surged at a 16 percent annual rate in the three months ended in April, while Phoenix gained at a 26 percent rate, according to Case-Shiller.
“Glamour cities where people want to move to and reside have always been on the East Coast and West Coast,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. “The drop in mortgage rates closer to 3.5 percent helped stimulate demand,” while sellers holding homes off the market caused “not a lot of supply, and what was out there got bid up.”
An index of pending home resales in the U.S. climbed 5.9 percent in May, figures from the National Association of Realtors showed today in Washington. The median forecast of 39 economists surveyed by Bloomberg News called for a 1.5 percent gain.
Brian Adamski, a Phoenix-based real estate agent, said that buyers he represents have put in bids on houses that have received as many as 40 offers. Inventory is especially slim for properties priced below $200,000, which are popular with cash buyers, he said.
“If you have a good product, priced reasonably well, it will go quick,” he said.
Prices rose at annual rates of 12 percent over the past three months in Seattle; 11 percent in Tampa, Florida; 8.3 percent in San Diego; and 8.2 percent in Miami, according to the Case-Shiller indexes. Some former housing-bubble markets haven’t fared as well. Prices rose at a 2.6 percent rate in Las Vegas and fell at a 4.3 percent rate in Atlanta and 7.3 percent rate in New York.
SunTrust Banks Inc., which is based in Atlanta and operates mostly in the U.S. Southeast, said housing is picking up in South Florida markets such as Miami, which were hit hard during the slump. The city is “having a remarkably fast recovery,” Chief Executive Officer William Rogers said in a May 15 interview.
“Miami got punched in the face and got two black eyes, but it’s going to recover because of where it’s located,” said Joe Higgins, a broker in Coconut Grove, Florida. “The Miami market is very active.”
The prime cities, neighborhoods and property types, such as Palm Beach County in Florida and condominiums in Miami’s Brickell neighborhood, are drawing the most demand, pushing prices up, said Brad Hunter, chief economist for Metrostudy, a Houston-based firm that tracks housing starts.
“These glamour markets are also 24-hour, international gateway cities, which do business worldwide and they attract demand from global buyers” such as the Brazilians who’ve been purchasing properties in Miami, he said.
In San Francisco, prices are being driven up by the soaring technology industry. In May, a record 211,400 people were employed in the city’s professional services sector, which includes computer design, an increase of 12,400 positions from a year earlier, according to the California Employment Development Department. Jobs in health care and private education services, leisure and hospitality also had larger-than-normal annual increases.
With inventory low, properties in the city’s Noe Valley and Dolores Heights neighborhoods are getting multiple offers, said Suhl Chin, an agent at Zephyr Real Estate. A “fixer” three-bedroom on Liberty Hill had 12 bids and is in contract for over $1.5 million, she said.
Listings at $1 million to $2 million are the “opening price point for a lot of tech workers getting their options at emerging companies,” according to Joel Goodrich, a broker at TRI/Coldwell Banker. His penthouse listing at the SOMA Grand high-rise on Mission Street may fetch $1,100 a square foot, he said.
“San Francisco is enjoying a combination of mega-factors, high among them the tech industry,” Goodrich said. “People are coming from London, China, New York and L.A.”
Cities with large numbers of upper-income households are faring best, said Mark Vitner, a Wells Fargo & Co. senior economist.
“This is a bifurcated economy where the well-to-do, and more highly educated and folks in the right places are doing relatively well, and sales are taking off for those guys,” he said.
U.S. homebuyers also are benefiting from falling borrowing costs. The average 30-year U.S. mortgage rate dropped to 3.66 percent in the week ended June 21, the lowest in records dating to 1971 at McLean, Virginia-based mortgage-finance company Freddie Mac.
Some economists said it may be too early to call a broader recovery.
“Demand coming from investors” might be contributing to gains in markets where prices are jumping, said Patrick Newport, an economist for IHS Global Insight in Lexington, Massachusetts. “I think that it is too soon to come to any conclusions about where home prices are heading, given the number of homeowners delinquent on their mortgage, and given that the Case-Shiller indices hit cyclical lows in March.”
Overall, the S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April from a year earlier, the smallest decline since November 2010, after decreasing 2.6 percent in the year ended March. The median forecast of 28 economists in a Bloomberg News survey projected a 2.5 percent drop.
The index’s co-creator said he remains encouraged.
“There are signs of strength,” Shiller said. Still, surveys of home buyers show a continued lowering of expectations on prices, he said. “Those expectations have just been down, down, down steadily.”