CoreLogic (RP Data’s parent company) released their November House Price Index (HPI) this week, providing an up-to-date assessment of housing market conditions in the United States. The CoreLogic HPI provides the most authoritative assessment of how house prices are changing across the United States. The November results provide a further positive indicator that the US housing market, and for that matter, the US economy, is emerging from a long down turn.
Keeping in mind that house prices peaked in the US way back in 2005, and it was the ongoing cumulative declines in home values and subsequent mortgage defaults that were largely the catalyst for triggering the Global Financial Crisis in late 2007. Overall, according to the HPI, house prices fell 33.3% from the market peak to the market trough, which was in February 2012. Since this time, US housing prices have recovered by 9.6%; however prices remain well below their 2005 peak.
The rate of annual growth is now tracking at 6.3%, which is the highest annual gain since June 2006.
In their latest ‘Market Pulse’ report (I highly recommend you download it if you are interested in the US housing market and economy – available here: http://www.corelogic.com/about-us/research.aspx) CoreLogic highlight the start of the housing market recovery can be tied to a few different factors. Most important is the decline in the number of REO (real estate owned) (ie bank owned) properties and the lack of inventory in the current market. REO sales are down about 20% compared to the previous year and the number of homes for sale is low due to what CoreLogic describes as the ‘lock out phenomenon’, whereby potential sellers are blocked from the market due to the fact that their debt level is higher than their property value. These buyers are locked out because, in most cases, they need to sell at a high enough price to extinguish their debt as well as create some equity for their next home purchase. As home prices rise, CoreLogic expects the tight for sale supply to ease.
Another positive factor for the US market is the fact that transaction numbers are also on the rise. The number of home sales was up 6% in 2012; the first time the annual number of sales has increased since 2005.
Overall, the improving US housing market should bode well for the US economy and global confidence levels. The fact that more homes are selling also implies that confidence levels are improving as the US economy starts on a long road to recovery.
As an aside – below is the updated trajectory graph showing how US home values and Australian home values have behaved post peak. While the Australian market was following the trajectory of the US downturn quite closely over the first sixteen months after the market peak, it is very clear now that the Australian market has stabilised much earlier than what transpired in the US.