Strong Demand Fueled Home Prices Increases in May, but Prices Expected to Fall Over the Year

Home Price Index Highlights: May 2020

By Molly Boesel Housing Affordability, Real Estate

  • National home prices increased 4.8% year over year in May.
  • Home prices are forecast to decrease by 6.6% from May 2020 to May 2021.
  • Home Price decreases will hit all U.S. states.

National home prices increased 4.8% year over year in May 2020, according to the latest CoreLogic Home Price Index (HPI®) Report. The May 2020 HPI gain was up from the May 2019 gain of 3.6%. Strong demand, especially by younger home buyers, and low supply helped push home prices higher in May. The economic downturn that started in March 2020 is predicted to cause a 6.6% drop in the HPI by May 2021, which would be the first decrease in annual home prices in over 9 years.

The HPI has increased on a year-over-year basis every month since February 2012 and has gained 68.3% since hitting bottom in March 2011. As of May 2020, the overall HPI was 13.3% higher than its pre-crisis peak in April 2006, just before the start of the 2007 financial crisis. Due to a decrease in the U.S. inflation index, the HPI adjusted for inflation was higher than the unadjusted HPI – adjusted for inflation, U.S. home prices increased 5.7% year over year in May 2020 and were 6.7% below their 2006 peak[1]. Figure 1 shows the cumulative price movement since the inception of the 2006 price declines for both the nominal HPI and the inflation-adjusted HPI, as well as the time in years since the first decrease in the indices.

CoreLogic analyzes four individual home-price tiers that are calculated relative to the median national home sale price[2]. The lowest price tier increased 6.9% year over year in May 2020, compared with 6.1% for the low- to middle-price tier, 5.2% for the middle- to moderate-price tier, and 4% for the high-price tier. Home price growth has accelerated for all four price tiers this year. Cumulative price gains since the 2011 trough were strongest for lower-priced homes, with the lowest price tier gaining 107.5%, the low- to middle-price tier gaining 85%, the middle- to moderate-price tier gaining 71.8% and the high-price tier gaining 53.7%. Figure 2 shows the change from a year ago and from the 2011 trough for each HPI price tier.

Figure 3 shows the year-over-year HPI growth in May 2020 for the 5 highest- and lowest-appreciating states. Idaho led the states in appreciation as it has since late 2018, with annual appreciation of 11.7% this May. At the low end, Alaska saw a small decrease in home prices of 0.2%. South Dakota was the only other state to show a decrease in prices, falling 0.1% from a year earlier. Prices in all states are forecast to decrease over the next year as the country continues to grapple with the coronavirus pandemic, with the largest decrease predicted to occur in Nevada with a year-over-year drop of 18.6%.   

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[1] The Consumer Price Index (CPI) Less Shelter was used to create the inflation-adjusted HPI.

[2] The four price tiers are based on the median sale price and are as follows: homes priced at 75% or less of the median (low price), homes priced between 75% and 100% of the median (low-to-middle price), homes priced between 100% and 125% of the median (middle-to-moderate price) and homes priced greater than 125% of the median (high price).