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LATEST CORELOGIC ECON TWEETS

Nominal HPI Expected to Return to Peak in Mid-2017

Real HPI Will Take Longer to Regain Losses

Molly Boesel    |    Property Valuation

The CoreLogic Home Price Index (HPI) reported monthly is measured in nominal terms, meaning that it is not adjusted for inflation. The accompanying chart shows the cumulative price movement since the inception of price declines for both the nominal HPI and the inflation-adjusted (or real) HPI1 and the time in years since the first decrease in the indices. As of September 2015 the nominal HPI was 7 percent below its peak. The nominal HPI peaked in April 2006 and troughed in March 2011. From peak to trough, the nominal HPI decreased by a total of 32.1 percent, or an average of 7.4 percent a year. Since the trough, the nominal HPI has gained 36.9 percent, or an average of 7.1 percent per year, through September 2015. With HPI growth forecast to slow to just under 5 percent per year, the nominal HPI will return to peak in mid-2017, eleven years after the start of the housing crisis.

Looking at the CoreLogic HPI in real terms shows a much deeper drop from the peak and a much longer recovery time. The real HPI decreased a total of 41.1 percent from the peak in March 2006 to the trough in February 2012, and rose 34.9 percent from the trough to September 2015. In September 2015, the real HPI was 20.2 percent below peak level. Over the peak to trough period, inflation increased by an average of 2.5 percent per year, but slowed to just 0.3 percent per year from the trough to September 2015, allowing the real HPI to gain some ground with the nominal HPI. With inflation expected to average 2.5 percent from September 2015 through the end of the 5-year HPI forecast period, the gap between nominal and real HPI will widen, and real HPI is not expected to return to peak within the forecast period.

[1] The Consumer Price Index (CPI) Less Shelter was used to create the real HPI until the end of the historical HPI series. The CPI for All Urban Consumers forecast from IHS Global Insight was used to create the real HPI for the HPI forecast period.

Data is also referenced in Real Home Prices Could Take 17 Years to Return to Peak. Wall Street Journal. November 24, 2015.

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