LPS Home Price Index Shows U.S. Home Price Decline of 0.9 Percent in January; Early Data Suggests Slowing Likely in February, to 0.3 Percent Drop
JACKSONVILLE, Fla. – April 9, 2012 – Lender Processing Services, Inc. (NYSE: LPS), a leading provider of technology, data and analytics for the mortgage and real estate industries, today announced that its LPS Applied Analytics division updated its home price index (LPS HPI) with residential sales concluded during January 2012.
LPS also announced that starting with this month’s report, results are based on an updated view that more accurately tracks price changes for non-distressed homes. The LPS HPI now accounts for the impact of short sale and foreclosure price data on estimates of normal market prices. It now reports monthly discounts from market prices for these distressed sales, allowing greater accuracy for loan loss estimates. In addition, this update now includes increased geographic coverage as a result of also including FHFA HPI data.
"With proper accounting for short sales, we see two things. First, prices on normal (non-distressed) properties are doing a bit better than had been estimated before. The dramatic fall in prices after the bubble is actually closer to 26 percent, less than the 30 percent which we and others have previously reported," said Raj Dosaj, vice president of LPS Applied Analytics. “This is due to the fact that many of the short sales appear to be the same homes that saw significant increases in values during the bubble.
“The second piece of information gleaned is that banks are getting about the same price on short sales and foreclosure sales in areas that have high levels of distressed transactions,” Dosaj continued. “The financial industry should consider this as it determines the most efficient way to manage delinquent loans.”
Although most homeowners have remained current with their loans, short sales have been a relatively large part of total home sales volume after the bubble. The lack of proper accounting for short sales has exaggerated their effect on all the major HPIs, including the LPS HPI, until now. LPS computes its HPI exclusively from differences in prices that homeowners pay on their initial purchases and what they later receive when they sell.
The updated LPS HPI national average home price for transactions during January 2012 declined 0.9 percent to a price level not seen since March 2003: $195,000 (Figure 1, Table 1). This would have marked the seventh consecutive month of price decreases. However, the reduced seasonal variations in the updated HPI show that the decline since June 2011 was interrupted by a slight increase during November 2011. The fall during December 2011 is similarly less than previously reported. Updated average prices for December 2011 and January 2012, along with preliminary estimates for February 2012 and corresponding monthly changes are as follows:
|||Dec 2011||Jan 2012||
LPS HPI national average home price
(in $ thousands) as of month ends shown
Observed and estimated national average
The LPS HPI December report (based on the previous version of the HPI) estimated January’s change at -1.2 percent, a somewhat smaller decline than was observed with the updated HPI.
Figure 1 Prices have declined since January 2009 at a slower rate than immediately following the market peak. The rate was slowest through May of 2010, and has fallen faster since. Prices have not been at the current level since March 2003.
During the period of most rapid price declines, from June 2007 through January 2008, the LPS HPI national average home price fell at an average annual rate of 10.9 percent. This is slower than the rate found in the previous version of the HPI, and is due mainly to the decreased height of the market peak in the updated HPI. The updated HPI shows a break in the post-bubble trend into two periods: from January 2009 to May 2010, and from the latter time until the present. Figure 1 shows the trends for these intervals.
|||June 2007||Jan 2009||May 2010||Jan 2012|
LPS HPI national average home prices
Foreclosure sales discounts from average
Short sale discounts from average home
Price changes were largely consistent across the country during January, increasing in only nine percent of the ZIP codes the LPS HPI covers. Price changes varied with price levels. As we have seen before, higher-priced homes (top 20 percent) fell in value the least during January (0.8 percent), and the value of the lowest-priced homes (bottom 20 percent) fell the most ̶ more than twice as much as the higher -priced homes (1.7 percent). The mid-priced homes (middle 20 percent) also fell in value significantly more: by 1.3 percent. The other price quintiles had declines between 0.8 and 0.9 percent.
Changes during January were largely consistent among metropolitan statistical areas (MSAs). Of the more than 585 MSAs the LPS HPI now covers, average prices declined for all of the MSAs (433) in 39 states. In addition, while average prices did not decline for all MSAs in the remaining states, prices fell in a total of 524 MSAs.
Among the MSAs for which LPS and the Bureau of Labor Statistics both provide data, listed in Table 1, average prices increased during January only for Washington, D.C. Fourteen MSAs in Table 1 saw declines of more than 1.0 percent over the month. Three MSAs declined by more than 1.5 percent: San Francisco, Cleveland and Chicago.
Table 1 shows the dates of the local market peaks for each of the largest 26 MSAs. Pittsburgh is the only MSA that, with seasonal variations, has seen its average house price rise continuously since January 2005.
About the LPS Home Price Index
The LPS HPI is one of the most complete and accurate home price sources available. It summarizes sales concluded during each month using a repeat sales analysis of home prices as of their transaction dates. Each month for each of more than 15,500 U.S. ZIP codes, the LPS HPI reports five price levels (quintiles) and corresponding discounts from these normal market prices for foreclosure (REO) and short sales. This level of detail is provided for four property groupings in every ZIP code: i) all residential properties, ii) condominiums, iii) single family housing and iv) other types of residential properties. Home prices are available with or without seasonal adjustments; REO and short sale discounts do not vary materially with seasonal variations and so need no adjustment. The LPS HPI provides aggregates of all these values for larger geographies than ZIP codes; the aggregates comprise cities, counties, states, the nation and statistical areas defined by the White House Office of Management and Budget. The five historical paths of price levels can be easily used to find price paths of intermediate prices. The LPS HPI also supplies REO discount rates for each ZIP code, which are used in the HPI calculations to correct for the impact on estimates of open-market prices that REO sale prices would have.
By combining property and loan data in its repeat sales analysis, the LPS HPI covers about 83 percent of single-family residential properties in the U.S. The innovative approach used to maximize geographical resolution enables the LPS HPI to meaningfully cover about 98 percent of these properties at the ZIP-code level.
The LPS HPI provides the financial industry with the most accurately timed home-price information available – detecting market changes sooner than other HPIs – with valuation accuracies competitive with AVMs in out-of-sample tests.
Updated data in the LPS HPI, such as foreclosure and short sale information on the MSAs in Table 1, or other levels of geographic resolution are available upon request and at the discretion of LPS Applied Analytics.
About Lender Processing Services