BLACK KNIGHT, INC.

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Black Knight : The Real Estate Market in 2022 – Home Prices and Indexes Versus Granular Realities

01/13/2022 | 12:01pm EDT

The month of January always evokes questions regarding the outlook for the U.S. real estate market in the new year. This is a difficult question to answer simply because even though monthly data is published on nationwide home prices and sales there really is no such thing as a monolithic "U.S. real estate market."

Housing prices are determined locally. They can vary widely by zip code, neighborhood, and even different sides of the same street. Prices are influenced by sub-market factors such as noise, geography, climate, and school district. With all the advanced data tools available to help parse data down to the neighborhood level, there's really no good reason for investors or risk managers to be evaluating portfolios using indexes that still measure by metro.

Investment success has historically accrued to those who figure out a way to use the tools and technology of their time to spot trends sooner, clearer, and more accurately than the competition. In today's mortgage investment market, that means drilling down deeper, to the zip code level and even lower.

A typical zip code, for example, may include 10 to 30 sub-boundaries or neighborhoods. The U.S. market consists of more than 500,000 of these neighborhoods, each with its own unique pricing and sales characteristics. This unique data can be tracked and analyzed to help create a more precise home sales and valuation picture.

For an idea of how widely price trends can vary within a single metro, consider the following examples, drawn from the Black Knight's Collateral Analytics HomePriceTrends daily sales tracking dataset.

Exhibit 1: Regional to Neighborhood Price Trends

Exhibit 1 shows the median price of a home in the New Brunswick-Lakewood, NJ, metro and a progressively smaller series of sub-markets, by quarter, since 2000. The price series for the region, as a whole, (light blue line) has more sales and is, thus, smoother.

There is a general correlation among all these markets with regard to periods of increasing and decreasing prices, but note the differences. Prices in Ocean County rise and fall to a greater degree than the region as a whole. Also note that systematic price differences persist over time.

Exhibit 2: Relative Price Changes within New Brunswick-Lakewood CBSA

Exhibit 2 shows relative price changes. Note that prices within zip code 07857 rose much more from 2011 through 2021 than the region overall.

Getting even more granular, prices in the Silver Ridge neighborhood did not increase as much as the zip code in which it is located. That means there were other neighborhoods where prices must have increased significantly more to raise the zip code average. Risk or portfolio managers relying only on price data for the New Brunswick-Lakewood CBSA might significantly underestimate home value appreciation for properties these neighborhoods and overcommit reserves that could be more profitably invested elsewhere.

Exhibit 3: Oceanside CA Median Single Family Price Trends Since 2000 by Neighborhood

Exhibit 3 shows the diversity of price trends by neighborhood within a single zip code - in this case, the 90257 in Oceanside, Calif. Again, while prices are generally correlated over time, there are significant differences among the 46 neighborhoods.

That divergence is especially pronounced within the past year.

Exhibit 4: Oceanside, Calif., Median Single-Family Price 2020 to 2021 Percent Change by Neighborhood

Exhibit 4 shows the annual median single family price percent changes by neighborhood within the 90257 zip code from 2020 to 2021.

Visualizing Neighborhood Trends and Patterns

Finding the signal amid the noise can be difficult when analyzing data all the way down to the neighborhood. That's especially true in major metropolitan areas, such as San Diego, which has approximately 1,200 neighborhoods; or Los Angeles, which has more than 2,200. Fortunately, there are data visualization tools that can help identify outliers by assigning a unique color to each predetermined variance range.

Exhibits 5 and 6 show median home prices and appreciation by neighborhood in San Diego. In Exhibit 6, the lighter colors show more appreciation, and the darker colors show less. The second set of maps (Exhibits 7 and 8) shows comparable data for Los Angeles.

Exhibit 5: San Diego County Single Family Neighborhood Price Ranges in 2021

Exhibit 6: San Diego County Single Family Neighborhood Price Percent Changes in 2021

Exhibit 7: Los Angeles County Single Family Neighborhood Price Ranges in 2021

Exhibit 8: Los Angeles County Single Family Neighborhood Price Percent Changes in 2021

Conclusion

We have all heard the statement that "all real estate is local." Thus, when answering the question about what the real estate market will do in 2022, we have hopefully made the point that there is not a simple answer. The combination of very low inventories of homes for sale and a favorable interest rate environment will continue to support home prices but appreciation will run at a much lower rate than the past year. In this regard, nationwide or even metro level trends are interesting to follow but the real key is what is happening on a more granular level such as zip code, or ideally, neighborhood. This has always been and will continue to be our focus at Black Knight Collateral Analytics.

Disclaimer

Black Knight Inc. published this content on 13 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 January 2022 17:00:01 UTC.


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