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Seriously underwater properties see smallest ever annual decrease

The first quarter of 2018 saw the smallest annual decrease in seriously underwater properties since ATTOM Data Solutions began tracking in the first quarter of 2013.

At the end of the first quarter of 2018, more than 5.2 million properties were seriously underwater, or the combined balance of loans secured by the property was at least 25% higher than the property’s estimated market value, according to ATTOM’s Q1 2018 U.S. Home Equity and Underwater Report.

This represents about 9.5% of all U.S. properties with a mortgage, up from 9.3% of all properties in the fourth quarter, but down from 9.7% in the first quarter of 2017, according to the report.

“We’ve reached a tipping point in this housing boom where enough homeowners have regained both sufficient equity and sufficient confidence to tap into their home equity, resulting in a noticeably slower decline in seriously underwater properties and slower growth in equity rich properties,” ATTOM Senior Vice President Daren Blomquist said.

“This tapping of equity could take the form of a cash-out refinance, home equity loan or simply a home sale,” Blomquist said. “We saw the biggest quarterly drop in average homeownership tenure for homeowners who sold in the first quarter since Q4 2008, evidence that more homeowners are reaching that equity-tapping tipping point more quickly and deciding to sell.”

The chart below shows the comparison of seriously underwater properties to equity rich properties dating back to the first quarter of 2014.

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ATTOM

(Source: ATTOM)

Equity rich properties, or properties where the combined loan amount secured by the property was 50% or less than the estimated market value, increased by 122,000 homes from last year to more than 13.8 million homes at the end of the first quarter. However, this is still down from last year’s peak of more than 14 million equity rich properties in the second quarter of 2017.

The number of equity rich properties at the end of the first quarter represents 25.3% of all properties with a mortgage. This is down from 25.4% in the fourth quarter but still up from 24.3% in the first quarter of 2017.

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EXCLUSIVE: New data shows there is no housing affordability crisis

Much has been said in recent months about the mounting housing affordability crisis in the U.S., including blaming it for holding back home sales, suggesting how U.S. Department of Housing and Urban Development Secretary Ben Carson can solve the crisis and even questioning if President Donald Trump’s trade war will worsen the crisis.

But new data provided exclusively to HousingWire by First American Financial Corp. suggests there is no such crisis.

Are home prices increasing? Absolutely. The latest Home Price Index report from CoreLogic shows home prices increased 7% year-over-year and 1.4% monthly in March.

Are mortgage rates decreasing housing affordability? Yep. The latest Primary Mortgage Market Survey from Freddie Mac shows last week mortgage rates increased to their highest level since 2013.

The fact is, affordability is decreasing. In fact, the map below from First American even shows Home Price Index from peak levels in 2007 range from a decrease of 31.05% in New Jersey to an increase of 47.33% in Colorado, with all other states somewhere in between. Most states have seen their Home Price Index at least return to peak levels.

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affordability

(Source: First American)

However, perhaps it hasn’t risen to the level of crisis quite yet.

The reason? Because while home prices have been increasing, so have incomes. While most states have once again reached their peak 2007 levels, incomes have far surpassed those of last decade.

Once a month, First American releases its Real Home Price Index, which measures the price changes of single-family properties throughout the U.S., adjusted for the impact of income and interest rate changes on consumer house-buying power over time. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

Now, new data released to HousingWire shows “real home prices,” at best, still saw decreases in the double digits from their 2007 peak years.

The states with even the least amount of decreases include Colorado, which decreased 15.67%, North Dakota with a decrease of 26.6%, Oregon with 29.56%, Georgia with 30.22% and Tennessee with 30.88%.

On the other end of the spectrum, some states are still at affordability levels significantly below their previous peaks, remember, the states above where the ones getting closest to their previous affordability peaks. The states at the other end include New Jersey, which is down 57.82%, Maryland down 56.53%, Vermont down 50.44%, Rhode Island down 48.93% and Florida down 48.78%.

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affordability

(Source: First American)

While home prices are rising, and housing is becoming less affordable, the maps show when factoring in income and other factors, affordability remains significantly below its previous peak levels before the housing crisis.

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Here are the top 10 most expensive rental markets in the U.S.

National rents are on the rise to the tune of 1.4% year-over-over. The coast hold the highest concentrations of rent growth titans, but mirror, mirror on the wall, California is far and away the most expensive state of them all.

According to Zumper, a rental listing site, three of the top five most expensive rental markets in the nation are in California. San Francisco holds the top spot as the nation’s priciest multifamily market exhibiting rent growth of 1.2% in its one-bedroom price to $3,440. San Jose came in third at 2,500 for a one-bedroom, and Los Angeles tied with Boston for fourth place at $2,300 for a one-bedroom apartment.

New York holds the second-place berth at $2,890 for a one-bedroom unit, though it fell .30% month-over-month and .70% year-over-year.

The top 10 markets remained largely unchanged with the exception of Los Angeles which cranked up its rent growth rate to 2.2% month-over-month and a staggering 10% year-over-year, catalyzing its climb from the five spot to share the fourth spot with Boston.

Here’s the full, top 10 list:

1. San Francisco

2. New York

3. San Jose

4. Boston

4. Los Angeles

6. Washington D.C.

7. Oakland

8. Seattle

9. San Diego

10. Miami

California is exhibiting rapid year-over-year rent growth with three cities in the state at 10% or more growth year-over-year. Looking a little further down the list, Anaheim and Long Beach are at over 15% rent growth year over year. There are only a handful of cities in Zumper’s top 100 outside of California with over 15% rent growth for one-bedroom units. To put it in perspective, Las Vegas and Houston have the highest rent growth year-over-year at 15.60%. Anaheim and Long Beach are both at 15.40% the second highest growth rate recorded in the report.

Here is a longer excerpt from the report; to view the whole report, click here.

The top 25 most expensive multifamily markets

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CoreLogic: Rising home prices create unstable market conditions

Home prices showed yet another surge in March, causing worry over rising affordability issues, according to the latest Home Price Index report from CoreLogic, a global property information, analytics and data-enabled solutions provider.

Home prices increased 7% nationally from March 2017 to March 2018, and increased 1.4% from the prior month, according to the report.

The chart below shows home prices have been steadily increasing at the same rate for the past several years. 

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CoreLogic HPI

(Source: CoreLogic)

“High demand and limited supply have pushed home prices above where they were in early 2006,” CoreLogic Chief Economist Frank Nothaft said. “New construction still lags historically normal levels, keeping upward pressure on prices.”

An analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock, indicates 37% of metropolitan areas have an overvalued housing market as of March 2018, CoreLogic reported. 

Another 28% of the top 100 metropolitan areas were undervalued while 35% were at value. When looking at only the top 50 markets, 50% were overvalued, 14% were undervalued and 36% were at-value.

The national home-price index is projected to increase by 5.2% from March 2018 to March 2019, according to the CoreLogic HPI Forecast.

The forecast is an econometric model that projects calculations from analyzing state level forecast, which are measured by the number of owner-occupied households for each state.

“The dream of homeownership continues to fade away for the average prospective buyer,” CoreLogic CEO Frank Martell said. “According to the report this can be attributed, to the top five markets in the country being overvalued because home prices are rising faster than incomes.”

If this trend continues, homeownership for typical buyers attempting to find a home will be difficult.  

“Lower-priced homes are appreciating much faster than higher-priced properties, making the affordability crisis progressively worse,” Martell said. “This is clearly an unsustainable condition that can only be remedied by aggressive and coordinated public/private sector actions.”

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This market is about to see a housing downturn

The caterpillar is a symbol of metamorphosis. Given it transforms from earthbound larvae to airborne pollinator, you might call it a symbol of upward mobility. In the Peoria Metropolitan Statistical Area, located in the heartland of Illinois, it was the 1925 arrival of earthmover manufacturer Caterpillar that provided the biggest lift to that region’s fortunes.

Last year, Caterpillar announced it would move its world headquarters from Peoria to Chicago, adding one more hit to a local economy that had been losing altitude for some time.

It’s no surprise, then, that the Peoria Metropolitan Statistical Area’s spot near the bottom of the recent 12-month VeroFORECAST of projected rates of U.S. real estate appreciation is tied to recent developments at the 93-year-old manufacturer.

The Veros Real Estate Solutions’ VeroFORECAST that was released on March 1 predicted changing property values across 342 U.S. metro areas through March 1, 2019. Of those, all but 10 showed some appreciation in value. One was predicted to remain unchanged while some depreciation was forecast for the other nine. As I discussed in this series’ previous HousingWire column, Atlantic City had the most-dire forecast with a predicted -2.9% decline in property values. With a projected -0.6% drop in home prices over the next year, Peoria and its surrounding MSA ranked the fifth lowest.

THE PEORIA MSA

There are five Central Illinois counties within the Peoria MSA: Peoria, Marshall, Stark, Tazewell and Woodford. The city of Peoria is the anchor, with the greatest population and employment base. According to the Greater Peoria Economic Development Council, the city of Peoria had the largest 2015 population among the MSAs cities, with 115,820 residents. That statistic from a 2014 U.S. Census Bureau estimate showed a big drop in numbers to the next four largest cities in the MSA, which ranged from Washington to Pekin.

Greater Peoria’s population has been relatively flat over the past decade, with its Economic Development Council showing less than 3% growth from 2000 to 2014, from 394,600 to 405,850. Its unemployment of 4.6%, roughly half a point above the current national average, contributes to the sluggish VeroFORECAST for the next 12 months.

It wasn’t until the end of 2008, when the economic crisis reached its crescendo, that manufacturing jobs in Peoria nosedived. Along with other loses, Caterpillar announced layoffs around the end of that year that added to staggering job loss (see the chart below from the Bureau of Labor Statistics). In a September 2016 analysis on the Illinois Policy website, Michael Lucci laid some of the blame at the state government, which he said, “has done much to weaken cities like Peoria by making them unattractive for new production investments, whether from Caterpillar or other companies. And that means state government is a major impediment to creating jobs middle-class workers need to support their families. Peoria is a case in point.”

veros peoria illinois

The previous year, it had appeared the economy would again take flight when Caterpillar announced plans to build an $800 million campus in downtown Peoria for its world headquarters. Early last year, that proposal was shelved in favor of moving the headquarters to suburban Chicago.

City officials were quick to minimize the impact on the employment base. Peoria’s Journal Star reported in March 2017 that earlier that year Peoria Mayor Jim Ardis had called the Caterpillar’s change of heart and headquarters, which unfortunately came the day before his speech, “a horrible kick in the gut.” But, he was quick to add, rising to the challenge of keeping hopes high, “We may lose 300 jobs when this is done, but we still have the 12,000-plus people living and working here when those folks leave.”

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NFHA: Greatest threat to fair housing is government’s failure to enforce the law

“This is a pivotal year for fair housing,” said Lisa Rice, National Fair Housing Alliance president and CEO. “As the 2018 trends report shows, we must put an end to the many institutionalized barriers that prevent too many families in this country from fair access to housing.”

More and more, this outlook is becoming the norm for fair housing groups, saying it is time to end fair housing discrimination.

In April, the Fair Housing Act marked its 50th anniversary, a marker celebrated by fair housing groups across the country and the U.S. Department of Housing and Urban Development. Now, the NFHA released its 2018 Fair Housing Trends Report: Making Every Neighborhood a Place of Opportunity.

In 2017, there were 28,843 reported housing discrimination complaints, a slight increase from complaints from the 28,181 complaints reported in 2016. However, most of these complaints, about 71.3%, were handled by private, nonprofit fair housing organizations.

HUD, on the other hand, processed just 1,311 complaints, less than 5% of the total, according to the report. State and local governmental Fair Housing Assistance Program agencies processes 6,896 complaints and the Department of Justice brought 41 cases.

While the total number of fair housing complaints increased in 2017, HUD and the FHAP processed fewer complaints than the 1,371 and 7,030 complaints reported in 2016, respectively. The number of complaints processed by the DOJ increased by just one, up from 40 cases in 2016.

But while government agencies might be slowly increasing their involvement in fair housing cases, private fair housing organizations handling the majority of complaints is nothing new, as shown in the chart below, which dates back to 2008.

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Fair housing

(Source: NFHA)

And according the new report from NFHA, that is the problem. The biggest obstacle to fair housing rights is the federal government’s failure to enforce the law vigorously, the report explained.

“We must commit to making every neighborhood a place of opportunity for its residents and to making all communities open to all people, regardless of race, national origin, disability or other protected status,” Rice said. “It has been 50 years, and the Fair Housing Act still has not been fully implemented. We cannot build a thriving society as long as our nation is plagued by discrimination, segregation, and severe economic inequality.”

In 2017, the most common types of fair housing complaints included complaints based on disability at 57%, race at 19% and family status at 9%.

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Matic appoints Shaz Kojouri VP of legal and compliance

Digital insurance agency and 2018 HousingWire Tech100 winner Matic announced recently it has named Shahrzad “Shaz” Kojouri as vice president of legal and compliance.

Kojouri, a licensed attorney with more than 15 years of experience in corporate compliance, will have responsibility over corporate governance, regulatory compliance and vendor management at Matic. Prior to joining Matic, Kojouri was assistant general counsel for nonprofit student loan provider AccessLex Institute.

Before joining AccessLex Institute, Kojouri oversaw regulatory compliance testing and Consumer Finance Protection Bureau readiness for mortgage lender New Penn Financial. She joined New Penn in 2009, in the aftermath of the subprime mortgage crisis, and guided the lender through intense regulatory changes.

“Matic’s strategic partners count on us to hold ourselves to the highest standards in regulatory compliance and corporate governance, and we take that commitment very seriously,” said Matic CEO Aaron Schiff. “We welcome Shaz to the team and look forward to working with her to deliver an even higher level of compliance assurance to our customers.” 

“Spending much of the last 10 years inside a top national lender has allowed me to bring a thorough and nuanced understanding of mortgage regulations to my work with Matic,” said Kojouri, who officially joined in the Matic team in January. “I look forward to helping Matic and its clients navigate these complex regulations with confidence.”

Kojouri Matic

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Is the rent finally too damn high? Rent households fall again, homeownership holds steady

Is a combination of high rents and shifting demographics driving a move from renting to buying?

The latest data from the Census Bureau shows that may be exactly what’s happening.

On Thursday, the Census released its quarterly report on residential vacancies and homeownership. And the report had some good news and bad news, depending on which industry you’re in.

For those who make their living via home buying, the news was mostly good. Homeownership held steady at 64.2%, demonstrating that there may be some underlying strength in the recent increases in homeownership.

But the news wasn’t quite so sunny in the rental world.

While the rental vacancy rate (units that remain unrented) held steady at 7%, the number of rental households fell for the fourth straight quarter.

According to the Census estimates, there were roughly 286,000 fewer renter households during the first quarter of 2018 compared to the first quarter of 2017.

Overall, there were approximately 43 million rental households in the U.S. in the first quarter, down from 43.287 million in first quarter of 2017.

Ralph McLaughlin, chief economist and founder of Veritas Urbis Economics, noted that the decrease in rental households is sign that more renters are becoming buyers.

“The fact that we now have four consecutive quarters where owner households increased while renters households fell is a strong sign households are making the switch from renting to buying,” McLaughlin said. “This is a trend that multifamily builders, investors, and landlords should take note of.”

McLaughlin went a step further, suggesting that landlords and multifamily homebuilders should be “nervous” about the seeming shift to buying. “This could lead to less demand for rental units this year, and downward pressure on rents,” McLaughlin said.

McLaughlin also noted that demographics may be playing a role in the shift between renting and buying.

“Households under 35 – which represent the largest potential pool of new homeowners in the U.S. – have shown some of the largest gains,” McLaughlin said. “While they only make up a third of all homebuyers, the steady uptick in their homeownership rate over the past year suggests their enormous purchasing power may be finally coming to housing market.”

The downward pressure on rents may be needed, as the Census report showed that during the first quarter, median asking rents rose to the highest level since 1988, which is as far as back the Census data goes.

Median asking rent Q1 2018

(Click to enlarge. Image courtesy of the Census Bureau.)

According to the Census report, the median asking rent was $954 in the first quarter, up $80 from the first quarter of last year. It’s also up $44 from the fourth quarter of 2017. The previous high was $912, which was recorded during the 3rd quarter of 2017.

Rent hit record levels in each of the four regions as well. In the Northeast, the median asking rent rose from $1,153 in the fourth quarter to $1,279 in the first quarter. In the same time period last year, the median asking rent was $1,057.

In the Midwest, the median asking rent climbed to $764, up from $725 in the fourth quarter and $716 in 2017’s first quarter.

In the South, the increase was much slighter, with rent rising from $906 in the fourth quarter to $907 in the first quarter. In the first quarter of last year, the rent was $847.

In the West, the increase was much more significant. In the first quarter, the median asking rent was $1,345, which was up from $1,210 in the fourth quarter and $1,132 in the first quarter of 2017.

In a note sent out after the report’s release, Matthew Pointon, property economist at Capital Economics, suggested that the rental data may actually be a little rosier than it appears.

“Given the number of existing homes for sale recently dropped to a record low, it is no surprise that the homeowner vacancy rate fell to 1.5% in the first-quarter, the joint-lowest rate for 24 years,” Pointon wrote.

“That has put a stop to what had been a gradual rise in the homeownership rate. It is also supporting rental demand. Despite a large rise in the number of rental apartments hitting the market over the past couple of years, the multifamily rental vacancy rate has held steady at just over 8% for the past six-months,” Pointon added.

Pointon said that the 7% overall rental vacancy rate is low by historical standards, and suggested that the news may show that multifamily housing is on firmer footing than it appears.

“At 8.2%, the multifamily rental vacancy rate is down marginally from 8.3% in the final quarter of last year, and suggests concerns about a large degree of oversupply of rental apartments is overblown,” Pointon said. “While a large number of apartments are being built, the lack of homes to buy is supporting rental demand. In turn, that argues against a sharp slowdown in rental growth this year.”

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Here are Q1 2018’s homeownership drivers

The homeownership rate was not statistically different from last year in the first quarter of 2018, according to the latest Quarterly Residential Vacancies and Homeownership report from the U.S. Census Bureau.

The homeownership rate increased just slightly to 64.2% in the first quarter, up from 63.6% in the first quarter of 2017 and unchanged from the fourth quarter, the report showed.

As the chart below shows, these rates remain significantly below historical levels and only began increasing once again in 2016.

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homeownership rate

(Source: U.S. Census Bureau)

“Today’s Housing Vacancies and Homeownership Survey data release for 2018 Q1 shows the homeownership rate ticked upward on a year-over-year basis for five consecutive quarters, but held steady from 2017 Q4,” Veritas Urbis Economics Founder and Chief Economist Ralph McLaughlin said.

Almost all age groups saw an increase in homeownership rate – except those at the youngest and oldest ends of the spectrum.

Millennials saw their homeownership rate fall once again as the rate for those under 36 years decreased from 36% in the fourth quarter to 35.3% in the first quarter. However, this is still up from 34.3% in the first quarter of 2017.

And one expert pointed out that even with quarterly drop, Millennials are still proving resilient amid difficult home buying conditions.

“Millennials have emerged as the most dogged homebuyers with those under 35 far outpacing the overall annual homeownership rate change, despite contending with the most vexing portion of the housing market,” Trulia Senior Economist Cheryl Young said. “Millennials make up the largest share of those seeking starter homes, a portion of the market that saw inventory plummet 14.2% and prices leap nearly 10% year-over-year in Q1 2017.”

Those ages 35 to 44 increased their homeownership rate from 58.9% in the fourth quarter and 59% in the first quarter of 2017 to 59.8% in the first quarter this year. Those ages 45 to 54 years increased from 69.5% in the fourth quarter and 69.4% last year to 70% in the first quarter. Those ages 55 to 64 years increased their homeownership rate from 75.3% in the fourth quarter to 75.4% in the first quarter. However, this was down slightly from 75.6% in the first quarter 2017.

But in the next age group, once again homeownership drops. For those ages 65 and older, the homeownership rate decreased from 79.2% in the fourth quarter and from 78.6% in the first quarter of 2017 to 78.5% in the first quarter this year.

Among all ethnic groups, and this should come as no surprise, Hispanics were the only demographic to see their homeownership rates grow both from last quarter and last year. Among the Hispanic population, the homeownership rate grew from 46.6% in the fourth quarter and in the first quarter of 2017 to 48.4% in the first quarter this year.

Why is this no surprise? Because last year a report from the National Association of Hispanic Real Estate Professionals showed the Hispanic homeownership rate accounted for 74.9% of the total net growth in the overall homeownership rate in the U.S.

The White homeownership rate decreased from 71.8% last year and 72.7% last quarter to 72.4% in the first quarter. The Black homeownership rate, while up slightly from 42.1% in the fourth quarter, decreased from 42.7% in the first quarter of 2017 to 42.2% in the first quarter this year. Finally, the Asian, Native Hawaiian and Pacific Islander rate decreased from 58.2% in the fourth quarter but increased from 56.8% last year to 57.3% in the first quarter this year.

The final driver of homeownership growth? As it turns out, vacancies have been decreasing, lending more inventory to the housing market.

“The decline in vacancy rate has been an important, though silent addition to the housing supply,” said Tian Liu, Genworth Mortgage Insurance chief economist. “Homeowner vacancy rate peaked in 2008 at 2.8%, and is now under 1.6%, adding significantly to the housing supply.”

“With vacancy rates now approaching the lowest level since the early-1990s, it troughed in 1993 at 1.4%, home prices will likely rise further, and the need for more affordable new homes is also greater,” Liu said.

The homeownership vacancy rate continues to decrease amid the highly competitive housing market. It decreased from 1.7% in the first quarter of 2017 and 1.6% in the fourth quarter to 1.5% in the first quarter of 2018.

“Given the number of existing homes for sale recently dropped to a record low, it is no surprise that the homeowner vacancy rate fell to 1.5% in the first-quarter, the joint-lowest rate for 24 years,” Capital Economics Property Economist Matthew Pointon said.

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FHFA: Home prices still on the rise

Home prices are still on the rise, increasing once again in February, according to the latest monthly House Price Index from the Federal Housing Finance Agency.

Home prices increased 0.6% from January, the report showed. This is a slight slowdown from the 0.8% increase in January, which was revised upward to 0.9%. Annually, home prices increased 7.2% from February 2017.

The chart below shows home prices continue to increase each month, but March came down slightly from January’s nearly one-year high.

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HPI

(Source: FHFA)

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Because of this, the selection excludes high-end homes bought with jumbo loans or cash sales.

However, one expert explained home prices could begin to moderate in 2018.

“Annual house price growth on both the Case-Shiller and FHFA measures has been fairly stable since the start of the year,” Capital Economics Property Economist Matthew Pointon said. “After dropping for the first time in 18-months in January, growth on the national Case-Shiller index returned to 6.3% in February.”

“A rise in debt-to-income ratios looks to have supported house price gains over the past few months but, with mortgage interest rates now on the rise, we still expect a slight moderation in growth this year,” Pointon said.

Monthly, across the nine census divisions, home price changes from January to February ranged from an increase of 0.1% in the West North Central division to an increase of 1.6% in the East South Central division.

Annually, the home price changes ranged from a low of a 4.8% increase in the Middle Atlantic division to an increase of 10.3% in the Pacific division.

Here are the states in each of the divisions:

West North Central: North Dakota, South Dakota, Minnesota, Nebraska, Iowa, Kansas and Missouri

East South Central: Kentucky, Tennessee, Mississippi and Alabama

Middle Atlantic: New York, New Jersey and Pennsylvania

Pacific: Hawaii, Alaska, Washington, Oregon and California