Written by Steven Hansen
CoreLogic’s Home Price Index (HPI) home prices increased 5.9% in August 2020, compared with August 2019, and the gain was up nearly 1% compared to the prior month, when home prices increased 5.1% year over year.
…. With heightened activity putting a strain on the current for-sale inventory, strong demand should help spur new homebuilding activity. ….
Analyst Opinion of CoreLogic’s HPI
This is a rear view of home prices. There are several likely scenarios:
- 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.
- There will be a great relocation spurred by the continuation of working from home [why live in an expensive location if you can live anywhere in the world you want].
- Some combination of above
Note the Forecast from CoreLogic on future home price growth:
Home price growth is expected to slow as greater availability of new and existing homes are placed for sale in 2021 and elevated unemployment saps buyer demand. The HPI Forecast shows prices will start to downshift in early 2021, with annual U.S. HPI gains slowing to just 0.2% by August 2021 and many locations experiencing a decline in prices.
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:
The imbalance between homebuyer demand and for-sale inventory is particularly acute for lower-priced homes. Because of this imbalance, homes priced more than 25% below the median were up 8.6% in price over the last year, compared with the 5.9% price increase for all homes.
HPI Case-Shiller Trends – Year-over-Year Growth
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Despite the continued pressures of the pandemic, consumer home-purchasing power has stayed strong as mortgage rates remain at record lows. Meanwhile, for-sale inventory has continued to dwindle, dropping 17% year over year in August, which created upward pressure on home price appreciation as buyers compete for the limited supply of homes.
From Frank Martell, president and CEO of CoreLogic:
Consumers who have not been as financially impacted by the ongoing economic pressures are taking advantage of low mortgage rates to either break into the market, upgrade their living situations or purchase second homes and investment properties. With heightened activity putting a strain on the current for-sale inventory, strong demand should help spur new homebuilding activity.
Despite the rapid acceleration of national home price growth, local markets continue to vary. For instance, in Phoenix, where there is a severe shortage of for-sale homes, prices increased 9.8% in August. Meanwhile, the New York-Jersey City-White Plains metro recorded an annual decline in home prices of -0.1%, as residents opt for more space and privacy in less densely populated areas. By state, Idaho, Arizona and Maine experienced the strongest price growth in August, up 10.8%, 9.7%, and 9.6%, respectively.
Looking forward, the HPI Forecast also reveals the disparity of home price growth across metros. In markets like Las Vegas, where the local tourism economy and job market continue to struggle, home prices are expected to decline 6.5% by August 2021. Conversely, in San Francisco, home prices are forecasted to increase 7.8% over the next 12 months as low 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 metros such as Las Vegas and Miami — areas that have been hard hit by the collapse of the tourism market — are at the greatest risk (above 70%) of a decline in home prices over the next 12 months. Other metro areas with a high risk of price declines include Lake Charles, Louisiana; Springfield, Massachusetts and Modesto, California.
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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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