Entry-Level Homes Driving Price Appreciation

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CoreLogic said on Tuesday that home
prices rose in October
by 0.9 percent compared to September and were 7.0
percent higher than 12 months earlier. These increases are identical to those registered
on the company’s Home Price Index (HPI) for September.

October was the fourth straight month
that the HPI had increased by 0.9 percent. 
Monthly increases have averaged 1.08 percent over the first 10 months of
2017.  The annual change for the
year-to-date has averaged 6.87 percent.

“Single-family residential
sales and prices continued to heat up in October,” said Dr. Frank Nothaft,
chief economist for CoreLogic. “On a year-over-year basis, home prices
grew in excess of 6 percent for four consecutive months ending in October, the
longest such streak since June 2014. This escalation in home prices reflects
both the acute lack of supply and the strengthening economy.”

The HPI has increased on an annual
basis every month since February 2012 and prices are now 0.9 percent higher
than at the peak set in April 2006. Adjusted for inflation the annual increase
in October 2017 was 5.4 percent.  Figure
2 shows the cumulative price movement for both the nominal and the inflation
adjusted HPI since the first price declines in 2008.

 

 

Washington was again the best
performing state with a 12.5 percent price gain year-over-year. Utah and Nevada
trailed, each at 10.1 percent. Prices in Idaho rose 9.0 percent and Michigan,
the only leader outside of the West, tied with Colorado for fifth place at 8.2
percent.

CoreLogic looked at its HPI across
four home price tiers that are calculated relative to the median national home
sale price. The lowest tier increased 9.5 percent on an annual basis, the low-to-middle
tier was up 8.5 percent, the middle-to-moderate group rose 7.2 percent and the
highest price tier was up 5.7 percent.

 

 

The low-price and low- to
middle-price tiers are the only price tiers to pass their pre-housing-crisis
peaks, by 18.2 percent and 0.7 percent, respectively. The middle- to
moderate-price tier remains 0.2 percent below its peak, and the high-price tier
remains down 0.1 percent.

“The acceleration in home
prices is good news for both homeowners and the economy because it leads to
higher home equity balances that support consumer spending and is a cushion
against mortgage risk
,” said Frank Martell, president and CEO of
CoreLogic. “However, for entry-level renters and first-time homebuyers, it
leads to tougher affordability challenges. According to the CoreLogic
Single-Family Rent Index, rents paid by entry-level renters for single-family
homes rose by 4.2 percent from October 2016 to October 2017 compared with overall
single-family rent growth of 2.7 percent over the same time.”

Looking ahead, the CoreLogic HPI
Forecast indicates that home prices will increase by 4.2 percent on a
year-over-year basis from October 2017 to October 2018, and on a
month-over-month basis home prices are expected to decrease by 0.2 percent from
October 2017 to November 2017.



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