Home Price Appreciation Still Strong, but Slowing at Year's End

CoreLogic's Home Price Index (HPI) finished up 2017 a little lower than when the year started but showing some additional slowing from later in the year.  The index in January 2017 was up 6.9 percent year-over-year, and then wobbled between 6.6 percent and 7.1 percent every month since. In December it was up 6.6 percent on an annual basis, after rising by 7.0 percent in September, October, and November. The December annual increase tied with June as the smallest of the year.

The states with the largest gains for the year were all in the west, Washington prices rose by 12.0 percent, Nevada was up 11.0 percent, Utah and Idaho increased by 10.7 percent, and California's index gained 8.2 percent.  At the other end of the scale, Alaska, Connecticut, and Oklahoma all had annual increases under 2.0 percent.

Nationally, home prices appreciated an average of 0.5 percent from November to December. It was the smallest monthly gain of the year, down from a 1.0 percent monthly gain in November. Monthly changes averaged 0.95 percent over the course of the year.

"The number of homes for sale has remained very low," said Dr. Frank Nothaft, chief economist for CoreLogic. "Job growth lowered the unemployment rate to 4.1 percent by year's end, the lowest level in 17 years. Rising income and consumer confidence has increased the number of prospective homebuyers. The net result of rising demand and limited for-sale inventory is a continued appreciation in home prices."

Looking ahead, CoreLogic forecasts a 4.3 percent increase in its HPI from December 2017 to December 2018 and a decline in prices from December 2017 to January 2018 of 0.4 percent. The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables.

Rising prices are affecting affordability and CoreLogic classifies 35 percent of the country's 100 largest metropolitan areas as having an overvalued housing market as of December 2017. Its Market Condition Indicators (MCI) data categorizes home prices in individual markets as undervalued, where home prices are at least 10 percent below the sustainable level; at value or overvalued, with home prices at least 10 percent higher than the long-term, sustainable level. The sustainable level is one supported by local market fundamentals such as disposable income.

As of December, 28 percent of the top 100 metropolitan areas were undervalued and 37 percent were at value. When looking at only the top 50 markets based on housing stock, 48 percent were overvalued, 14 percent were undervalued, and 38 percent were at value.

"Home prices continue to rise as a result of aggressive monetary policy, the economic and jobs recovery and a lack of housing stock. The largest price gains during 2017 were in five Western states: California, Idaho, Nevada, Utah and Washington," said Frank Martell, president and CEO of CoreLogic. "As home prices and the cost of originating loans rise, affordability continues to erode, making it more challenging for both first time buyers and moderate-income families to buy. At this point, we estimate that more than one-third of the 100 largest metropolitan areas are overvalued."