While the weather has gotten warmer, CoreLogic is anticipating home prices to begin cooling.
The company’s most recent Home Price Index (HPI) report called for a month-over-month home price decrease of 0.1% in June, along with a year-over-year drop of 6.6% by May 2021.
CoreLogic anticipates the decline despite home prices continuing modest but steady growth up through May. The HPI revealed that, nationally, home prices increased by 4.8% year over year and 0.7% month over month.
“Home-purchase activity, bolstered by record-low interest rates, continues to exceed expectations despite the severe recession,” said Frank Martell, president and CEO of CoreLogic. “Pent-up buyer demand was delayed from spring to summer and is reflected in the latest price data.”
Also bolstering price growth has been tight supply, which has only been exacerbated by the coronavirus crisis. But with elevated unemployment persisting, the strong first-quarter home purchase demand that helped maintain home prices through the next three months could give way to declining purchase activity and decreasing prices, Nothaft said. CoreLogic is forecasting the June price falloff despite new contract signings increasing annually in May.
“Pending sales and home-purchase loan applications are higher than in June of last year and reflect the buying activity of millennials,” said Frank Nothaft, chief economist at CoreLogic. “By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession.”
The recent spike in COVID-19 cases nationwide also contributed to the predicted home price downtick, CoreLogic’s report said. Some states, like Arizona and Florida, have seen coronavirus cases on the rise while their spring and summer tourism seasons have remained dormant, curbing purchase demand enough to potentially inhibit price gains locally over the coming year.
In many markets in those states, CoreLogic’s Market Risk Indicator report predicts a very high probability (above 60%) of a decline in home prices over the next 12 months. Such markets include Prescott and Lake Havasu, Arizona; Daphne-Fairhope-Foley, Alabama; and Naples and Crestview-Fort Walton Beach, Florida.
The tourism downturn also figures to have an impact on large destination cities like Las Vegas, where the leisure and hospitality industries make up for a big slice of the economic pie. The city — already among the 39% of metro areas that had an overvalued housing market in May — is expected to see a 20.1% decline in home prices by May 2021, per CoreLogic. Compare that to San Diego, where home prices are projected to fall just 1.3% over the next 12 months.
