Written by Steven Hansen
CoreLogic’s Home Price Index (HPI) shows home prices increased by 4.8%, compared with May 2019. Home prices increased 0.7% in May 2020 compared with April of this year.
…. By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession ….
Analyst Opinion of CoreLogic’s HPI
This is a rear view of home prices. Econintersect believes home prices will deteriorate as the year progresses as the knock-on effect of the coronavirus will grow. The worst-case will be a decline to Great Recession levels but the most likely scenario is a 10% decline roughly equal to the expected unemployment rate. Too much money is being removed from the economy due to the COVID restrictions and elevated unemployment.
Note the Forecast from CoreLogic on future home price growth:
However, the anticipated impacts of the recession are beginning to appear across the housing market. Despite new contract signings rising year over year in May, home price growth is expected to stall in June and remain that way throughout the summer. CoreLogic HPI Forecast predicts a month-over-month price decrease of 0.1% in June and a year-over-year decline of 6.6% by May 2021.
According to CoreLogic:
…. revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.
Strong home purchase demand in the first quarter of 2020, coupled with tightening supply, has helped prop up home prices through the coronavirus (COVID-19) crisis.
Unlike the Great Recession, the current economic downturn is not driven by the housing market, which continues to post gains in many parts of the country. While activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates. This prediction is exacerbated by the recent spike in COVID-19 cases across the country.
Dr. Frank Nothaft, chief economist at CoreLogic stated:
Pending sales and home-purchase loan applications are higher than in June of last year and reflect the buying activity of millennials. By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession.
HPI Case-Shiller Trends – Year-over-Year Growth
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While national home prices remained steady, the pandemic has created a volatile landscape for local housing markets. For example, single-family home prices in Philadelphia experienced an annual gain of 7.7% in May, compared to San Francisco’s 1.1%. The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts a very high probability (above 60%) of a decline in home prices over the next 12 months in Prescott, Arizona; Lake Havasu, Arizona; Daphne-Fairhope-Foley, Alabama and Naples and Crestview-Fort Walton Beach, Florida.
States like Arizona and Florida faced the perfect storm of elevated COVID-19 cases and the subsequent collapse of the spring and summer tourism market, which curtailed home-purchase demand enough to keep a lid on home price gains over the coming year. While harder-hit areas may also experience a slower rebound, the preservation of factors like low mortgage interest rates and a shortage of for-sale supply have already supported prices in some metros and may also encourage home price stabilization nationwide.
According to the CoreLogic Market Condition Indicators (MCI), an analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock, 39% of metropolitan areas had an overvalued housing market in May 2020, while 24% were undervalued and 37% were at value. This, coupled with the HPI Forecast, also continues to show the disparity of home prices across metros. In overvalued markets like Las Vegas, where the local tourism economy also took a hit due to COVID-19, home prices are expected to decline by 20.1% by May 2021. Meanwhile, in San Diego—where the market conditions are considered normal—home prices are forecasted to decline just 1.3% over the next 12 months.
From Frank Martell, president and CEO of CoreLogic:
Home-purchase activity, bolstered by record-low interest rates, continues to exceed expectations despite the severe recession. Pent-up buyer demand was delayed from spring to summer and is reflected in the latest price data. But with elevated unemployment, purchase activity and home prices could fall off after summer.
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Caveats Relating to Home Price Indices
There is no such thing as an “accurate” home price index. CoreLogic HPI is a repeat sales-type index which should not be skewed by changes in the mix of home sales. For more information, please read: http://www.philadelphiafed.org/research-and-data/publications/research-rap/2014/house-price-indexes.pdf
From CoreLogic:
The CoreLogic HPI™ is built on industry-leading public record, servicing and securities real-estate databases and incorporates more than 40 years of repeat-sales transactions for analyzing home price trends. Generally released on the first Tuesday of each month with an average five-week lag, the CoreLogic HPI is designed to provide an early indication of home price trends by market segment and for the “Single-Family Combined” tier representing the most comprehensive set of properties, including all sales for single-family attached and single-family detached properties. The indexes are fully revised with each release and employ techniques to signal turning points sooner. The CoreLogic HPI provides measures for multiple market segments, referred to as tiers, based on property type, price, time between sales, loan type (conforming vs. non-conforming) and distressed sales. Broad national coverage is available from the national level down to ZIP Code, including non-disclosure states.
CoreLogic HPI Forecasts™ are based on a two-stage, error-correction econometric model that combines the equilibrium home price—as a function of real disposable income per capita—with short-run fluctuations caused by market momentum, mean-reversion, and exogenous economic shocks like changes in the unemployment rate. With a 30-year forecast horizon, CoreLogic HPI Forecasts project CoreLogic HPI levels for two tiers—”Single-Family Combined” (both attached and detached) and “Single-Family Combined Excluding Distressed Sales.” As a companion to the CoreLogic HPI Forecasts, Stress-Testing Scenarios align with Comprehensive Capital Analysis and Review (CCAR) national scenarios to project five years of home prices under baseline, adverse and severely adverse scenarios at state, CBSA and ZIP Code levels. The forecast accuracy represents a 95-percent statistical confidence interval with a +/- 2.0 percent margin of error for the index.
Source: CoreLogic
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