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Home Prices Are Up. Haven't You Heard?

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Find Out Where Asking Prices and Rents Are Heading, Almost In Real-Time, With the New Trulia Price Monitor and Trulia Rent Monitor

I rely on the major sales-price indexes -- Case-Shiller, Federal Housing Finance Agency (FHFA) and CoreLogic -- as much as the next guy (or the next housing economist, anyway). They're essential for understanding where home prices have been going. But they come out between five and eight weeks after each month ends, and the sales prices they report are rooted in asking prices set two or three months earlier. Doing these sales-price indexes right takes time, but buyers, sellers, investors and policymakers need to know what's happening in the housing market now.

Starting today, we're closing this gap. The Trulia Price Monitor and the Trulia Rent Monitor show every month what's happening to asking prices and rents almost in real-time. By focusing on asking prices and releasing each month's Monitors just days after each month ends, we can detect price movements at least three months before the major sales-price indexes do.

What are the Trulia Price Monitor and Trulia Rent Monitor?
To create the Trulia Price Monitor and Trulia Rent Monitor, we take all the for-sale homes and rentals ever listed on Trulia.com and calculate how asking prices and rents changed month by month. Rather than simply tracking the average or median, we adjust for the changing composition of homes that are listed each month. Therefore, these Monitors reflect the price and rent trends for similar homes in similar neighborhoods over time. For the Trulia Price Monitor, we also account for the regular seasonal fluctuations in asking prices in order to reveal the underlying trend in prices.

The Trulia Price Monitor differs from the major sales-price indexes in important ways.

First, we focus on asking prices. Final asking prices lead sales prices by about two or three months, reflecting the time that homes are typically on the market. In 2011, the Trulia Price Monitor's national month-on-month changes track the seasonally-adjusted month-on-month changes in Case-Shiller and FHFA two months later.  Asking prices, however, are not a perfect predictor of sales prices: the final sales price for a home can be above or below asking, and some listed homes might not sell. Asking prices and sales prices each have their advantages for understanding the housing market: asking prices have the advantage of showing current market conditions and trends, but sales prices are the best guide to historical and long-term trends in the housing market.

Second, the Trulia Price Monitor uses a different statistical approach: a "hedonic" rather than "repeat-sales" method. The explanation gets technical pretty quickly, but we've provided all the details in our FAQs.

Here's what to expect from us: in the first few days of each month, we will publish price and rent trends for the previous month, for the nation as a whole and for the largest metro areas (for prices, the 100 largest; for rents, most of the 100 largest). We report monthly, quarterly and yearly changes nationally, plus quarterly and yearly changes at the metro-level. Our approach lets us dig deep: in the future, we'll look at price trends for single-family homes versus condos; homes with one, two and three or more bedrooms; downtown versus suburban trends; and more. Have some other comparison that you'd like us to make? Email us and let us know.

Madness! Asking Home Prices Moved Up in March
Let's get to the facts. Nationally, asking prices on for-sale homes were 1.4 percent higher in March than one quarter ago. Prices increased month over month by 0.9 percent in March and 0.6 percent in February. What we found through the Monitor is that asking prices had been declining prior to February and reached a low in January 2012. Throughout 2011, asking prices rose slightly in several months of the year, but never more than 0.2 percent in a month. Asking prices in March were 0.7 percent below their level one year earlier.

One thing to keep in mind -- because the Trulia Price Monitor is seasonally adjusted, these monthly and quarterly increases are on top of typical springtime price jumps. Without adjusting for seasonality, asking prices rose 2.4 percent quarter over quarter.

Asking Home Prices Are Looking Up for the Sunshine State
But all housing is local. On the up side, the Trulia Price Monitor revealed that asking prices rose year over year in all large Florida metros, and fastest in Cape Coral-Fort Myers and Miami. Asking prices also rose in Phoenix, Pittsburgh and the Detroit area. Meanwhile, local housing markets in much of the West continue to struggle. Prices fell most in Tacoma and Seattle, followed by Sacramento and Las Vegas. All large California metros saw year-over-year price declines. Just check out this metro-level map and see for yourself. Florida and Michigan are looking mighty green (which means rising prices) whereas California is in the red (which means falling prices).

Why do we see price increases in some places and price declines in others? As a general rule, prices are now rising faster in places where prices fell more during the bust and where vacancy rates are higher. In other words, many of the local price increases are bounce-backs: Cape Coral-Fort Myers, Miami and Phoenix all saw huge price drops after the bubble burst and big increases in asking prices this past year. But there are exceptions: Las Vegas prices continue to fall, even after years of steep price declines.

Top 10 Metros With Largest Price Increases
# U.S. Metro Y-O-Y % Change in Asking Price
1 Cape Coral-Fort Myers, FL 14.8%
2 Miami, FL 14.1%
3 Phoenix, AZ 13.2%
4 Pittsburgh, PA 9.2%
5 Little Rock, AR 6.7%
6 Orlando, FL 6.3%
7 North Port-Bradenton-Sarasota, FL 6.2%
8 Palm Bay-Melbourne-Titusville, FL 6.1%
9 West Palm Beach, FL 5.8%
10 Warren-Troy-Farmington Hills, MI 5.6%

Top 10 Metros with Largest Price Decreases
# U.S. Metro Y-O-Y % Change in Asking Price
1 Tacoma, WA -11.9%
2 Seattle, WA -9.1%
3 Sacramento, CA -8.3%
4 Las Vegas, NV -7.7%
5 Wilmington, DE-MD-NJ -7.7%
6 Columbia, SC -7.3%
7 Cleveland, OH -6.9%
8 Fresno, CA -6.8%
9 Milwaukee, WI -6.7%
10 Allentown, PA-NJ -6.7%

Note: Rankings based on the year-over-year changes in asking price among the 100 largest U.S. metropolitan areas. Want to see the full list of price and rent changes for all 100 metros? You can download it here.

No Wonder Your Landlord is Smiling
What about rentals? Nationally, rents rose by 5.0 percent year on year: unlike prices, rents have been moving steadily upward. During the recession, some owners lost their homes and became renters instead; also, many younger adults deferred the leap from renting to owning. Strong rental demand, combined with little new rental construction, pushed rents higher.

Asking rents rose over the past year in almost all large metro areas included in the Trulia Rent Monitor -- regardless of whether asking home prices were going up or down. For example, rents rose strongly in Miami (12.1 percent) and Denver (9.9 percent), where for-sale prices also increased. Meanwhile, rental affordability declined in places where rents rose while prices fell, most notably in San Francisco (rents up 11.1 percent), Seattle (9.7 percent), San Jose (9.4 percent) and Boston (9.2 percent). As for the very largest metros, rents rose 6.2 percent in New York and 6.1 percent in Chicago, but only 0.6 percent in Los Angeles.

So what drives rent trends? Employment growth matters most. San Francisco, Denver, Seattle, San Jose and Austin all had high year-on-year employment growth (through February 2012, according to the Bureau of Labor Statistics) and big rent increases.

Is This Bounce-back Here To Stay?
Will these price and rent increases continue? Continued job growth plus declining inventories equal more buyers chasing fewer homes - and therefore higher prices. The big wildcard for prices is the next wave of foreclosures. The robo-signing settlement will accelerate foreclosures, which will ultimately depress prices in neighborhoods where foreclosures are concentrated. Rents this year depend on both job growth and new construction: last year builders broke ground on many multi-family buildings, which should come to market later this year and dampen rent increases.

Want to be the first to know how foreclosures, construction and jobs are affecting prices and rents in April? Come back in early May, when we'll release the April 2012 Trulia Price Monitor and Trulia Rent Monitor.