October Home Price Gains Show Expected Slowdown

Housing development
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Home prices rose 11% in October, compared with the same month a year ago, for a 20th consecutive monthly year-over-year gain, according to research firm CoreLogic Inc. (NYSE: CLGX). Home prices rose 0.2% from September to October. The data include sales of distressed properties, and the index is a non-seasonally adjusted three-month weighted average.

Excluding distressed sales, October prices rose 0.4% compared with September, and the year-over-year price rose by 11%. Home prices remain 17.3% below their April 2006 peak when distressed sales are counted, and 13.1% below the peak when distressed sales are excluded.

In the month of October, homebuilder stocks peaked late in the month before dropping again. Toll Brothers Inc. (NYSE: TOL) posted a monthly gain of about 1.5%, PulteGroup Inc. (NYSE: PHM) rose nearly 7% and D.R. Horton Inc. (NYSE: DHI) saw a drop of about 2.5%. Homebuilding stock gains outpaced home improvement stock gains by a large margin. Home Depot Inc. (NYSE: HD) was up about 2.7% and Lowe’s Companies Inc. (NYSE: LOW) was up about 4.6%.

CoreLogic expects November housing prices to rise by 12.2% year-over-year and to remain flat month-over-month. Excluding distressed sales, CoreLogic’s year-over-year increase for November is forecast at 11.2% and the month-over-month estimate is forecast to rise by 0.4%.

The company’s CEO noted:

The deceleration in month-on-month trends was anticipated as strong gains in home prices over the spring and summer slow in line with normal seasonal patterns and the impact of higher mortgage interest rates.

Including distressed sales, October year-over-year home prices rose the most in Nevada (prices up 25.9%), California (22.4%), Georgia (14.2%), Michigan (14.1%) and Arizona (14%). The states with the smallest gains are New Mexico (-0.5%), Arkansas (0.4%), Kentucky (1.1%), Louisiana (1.8%) and Mississippi (1.9%). Only New Mexico experienced a year-over-year price decline in October, and 23 states are now within 10% of their home price peaks.

Home price gains for November and December should continue to show significant improvement year-over-year, but month-over-month gains will be small to nonexistent. The next few months are historically the slow season for home sales, and there is little reason to expect a different outcome this year. Mortgage rates, though higher than a year ago, are still historically low, and stock price gains for new home builders should hold up well going into the new year.

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