HPIs Are Now in Record Territory: The Question is, Will They Stay There?

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For different reasons, top housing economist say, Yes, HPIs will stay where they are.

In July, the CoreLogic Housing Price Index (HPI) jumped 18% year-over-year—the biggest single increase in the 45-year history of the index. The big question now is: is this the top and where do prices go from here?

Recently several top housing economists weighed in of the state of the market and what potentially will drive it going forward. Here’s what they are predicting and what trends they are watching closely.

CoreLogic’s economists expect the market to moderate its red-hot pace but don’t see prices falling. A year from now, July 2022, they expect their national index to be about 2.7% higher than where it is today. The reason: a lack of single-family inventory which they say may take five to ten years to resolve.

The report noted that “A recent CoreLogic survey of consumers looking to buy homes shows that, on average, 65.8% of respondents across all age cohorts strongly prefer standalone properties compared to other property types. Given the widespread demand, and considering the number of standalone homes built during the past decade, the single-family market is estimated to be undersupplied by 4.35 million units by 2022.”

First American’s chief economist, Mark Fleming, had a slightly different perspective. While acknowledging that price gains had reduced home buying affordability somewhat, he noted that record low interest rates and income gains had significantly off-set rising prices. The last time housing prices jumped 17% was in 2005 with prices peaking in 2006. “Nominal house prices are well above the 2006 housing boom peak, but the real house-buying power adjusted house price is 42% below the 2006 housing boom peak,” he reported. “House-buying power matters because people buy homes based on how much it costs each month to make a mortgage payment, not the price of the home.”

Fleming also noted that the trends driving today’s market are very different than those that created the housing boom of 2006, which included financial innovations that allowed borrowers to take on more debt that they could repay. Although he believes there is more inventory that will come to market as hold-out owners are enticed into the market by high prices, and some buyers will pull back, he expects that “house prices will adjust but the shortage of supply relative to demand will keep house price appreciation positive.”

What will the end of forbearance mean?

During the Covid-19 pandemic, the CARES Act protected U.S. homeowners by allowing them to stop paying their mortgage with little consequences to their credit score. At one point, more than 4.3 million homeowners sought this relief, known as mortgage forbearance.

As their jobs returned, and their fears subsided many homeowners exited the program, and today only 1.7 million homeowners remain in forbearance. At the end of September, the program comes to an end and the remaining homeowners must begin to exit. Most are expected to be able to resume payments, but not all.

Zillow recently analyzed the numbers for Fortune magazine and estimated that 25% of the 1.7 million, or roughly 425,000 homes, could be on the market over the year, with nearly half that number—roughly 200,000 listing as early as this fall. “Even if 25% of the forbearance borrowers go through with listing their homes, it’s unlikely to cause a housing market crash,” Fortune wrote. “Demand for homes simply outmatches supply. U.S. inventory is still 38% below pre-pandemic levels. And demographics coupled with low mortgage rates continue to push the market forward.”

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