Written by Steven Hansen
CoreLogic’s Home Price Index (HPI) shows home prices increased by 4.9% in June 2020, compared with June 2019. Month over month, home prices increased 1%, compared with May of this year, the fastest monthly gain for the month of June since 2013.
…. stronger home prices this summer reflect improved affordability, demographic demands, supply constraints and continued strong interest in purchasing a home ….
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:
CoreLogic’s HPI forecast predicts a modest decline in home prices over the next year. A sign of a strong foundation and resiliency in the housing market in the face of the pandemic. Stronger home prices reflect improved affordability, demographic demands, supply constraints and continued strong interest in purchasing a home. These factors combined to keep home prices steady despite the continued pressure of the pandemic and related economic fall-out.
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.
Dr. Frank Nothaft, chief economist at CoreLogic stated:
Mortgage rates hit record lows this spring, which created affordability for home buyers. First-time buyers, and millennials in particular, have jumped at the opportunity to achieve homeownership.
HPI Case-Shiller Trends – Year-over-Year Growth
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Despite the renewed pickup of national home price growth, the impact on local markets continues to fluctuate. For example, home prices in Philadelphia experienced an annual gain of 8.4% in June, driven by an uptick in New York City residents purchasing homes, likely in an effort to migrate from the coronavirus (COVID-19) hotspot. Meanwhile, affordability constraints in San Francisco led to an annual decline in home prices of 0.2%.
Looking forward, the HPI Forecast also reveals the disparity of home prices across metros. In markets like Las Vegas, where the local tourism economy and job market continue to suffer due to the pandemic, home prices are expected to decline 11.3% by June 2021. Meanwhile, in San Diego, home prices are forecasted to increase 4.2% over the next 12 months as lack of inventory continues to push prices up.
The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that metro areas with an elevated resurgence of COVID-19 cases—like Prescott, Arizona, and Lake Havasu, Arizona—are at the greatest risk (above 60%) of a decline in home prices over the next 12 months. Other metro areas with a high risk of price declines include Las Vegas, Nevada; Peoria, Illinois; and Worchester, Massachusetts.
From Frank Martell, president and CEO of CoreLogic:
Home price appreciation continues at a torrid pace reflecting fundamental strength in demand drivers and affordability. As we move forward, we expect these price increases to moderate over the next twelve months. Given the economic outlook, housing remains a bright spot for the foreseeable future
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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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