The CoreLogic Index
The CoreLogic Index is a widely followed index of real estate values. Unlike other major indices such as Case-Shiller or Radar Logic, CoreLogic separates distressed sales from nondistressed sales. Nondistressed sales indicate the core market in general. It’s important to note that CoreLogic recently bought the Case-Shiller indices. So we’ll see if it changes its methodology.
Mortgage real estate investment trusts (or REITs) such as Newcastle (NCT) and PennyMac (PMT) as well as homebuilders such as Lennar (LEN), Standard Pacific Homes (SPF), and KB Home (KBH), pay close attention to real estate values.
The CoreLogic Home Price Index (or HPI)
Real estate values are big drivers of consumer comfort and spending. Thus, they have a large impact on the economy. The phenomenon of “underwater” homeowners, or those who owe more than their mortgages are worth, has been a major drag on economic growth. Underwater homeowners are reluctant to spend. They can’t relocate to where jobs are. Real estate and mortgage professionals watch the real estate indices closely.
Real estate prices are also a big driver of credit availability in the economy. Mortgages and loans secured by real estate are major risk areas for banks. When real estate prices are falling, banks become conservative and reserve funds for losses. In contrast, increasing real estate prices make the collateral worth more than the loan. This encourages them to lend more.
Month-over-month growth is negative, but still up on year-over-year basis
The 6.1% year-over-year gain is less than the annual gains we’ve been seeing over the past year. On a month-over-month basis, prices increased .5% after falling .1% in September. The prices for ex-distressed sales increased 5.6%. Prices are still 12.4% below their peak in April 2006. In terms of price points, the luxury end of the market is leveling off, while the lower price points are growing faster. Lower-end prices were up 9.4% year-over-year, while the upper-end prices were up only 4.5%. This could be evidence that first-time homebuyers are awakening from their slumber at long last.
It’s important to note that the Federal Housing Finance Agency (or FHFA) HPI has prices within 6.5% of the peak.
The difference between the indices is the sample. The rebound has been strongest in the western states, primarily California, Nevada, and Arizona. However, of the 100 distinct markets that CoreLogic measures, 94 showed year-over-year gains.