A Deeper Look at the CoreLogic HPI Shows Some Losers Can Be Big Winners
Since the U.S. began recovering from the home-price bust in 2006, economists have used the peak-to-current change in prices as a measure of recovery in markets. However, the peak-to-current change hyper-focuses on economic losses for those who bought at the peak. What about consumers who bought homes while prices were at the bottom of the cycle? If someone was lucky enough to buy as a market hit bottom and began to recover, they have seen large home-price gains.
Figure 1 shows the typical view of home price changes. The figure shows the peak-to-trough and peak-to-current changes in the CoreLogic Home Price Index (HPI) for the U.S., the four states with the largest peak-to-current declines, and the four states with the largest peak-to-current gains. In the states where the HPI has passed the pre-crisis peak, the peak used to calculate the numbers in Figure 1 is the pre-crisis peak. The U.S. HPI peaked in 2006, and returned to the 2006 peak in September 2017. Nevada has the largest peak-to-current decline of any state, and had the largest peak-to-trough decrease at 60 percent. On the other end, North Dakota had a shallow peak-to-trough decline, and has risen 47 percent above the prior peak seen in 2008.
Figure 2 gives a different view of the HPI changes and illustrates the depths of the most notable state-level price declines and the subsequent upward trajectory in those states. Figure 2 shows the peak-to-trough and trough-to-current HPI changes for the U.S. and the seven states that had larger peak-to-trough declines than the U.S. For the nation, from the 2006 peak to the 2011 trough, the loss was 33 percent, but from the 2011 trough to September 2017 the gain was 50 percent. The most extreme drop in the HPI was in Nevada, but prices in that state have gained 89 percent since hitting bottom in 2012. For reference, we can compare the gains in the HPI to gains in the stock market. The S&P 500 fell 51 percent from peak to trough, but has gained 229 percent from the trough through September 2017.
The large price gains since the home-price bottom translate into large amounts of home equity gained by homeowners, improving their balance sheets. As shown in the CoreLogic Homeowner Equity Report, in the 12 months ending in September 2017, the average homeowner gained nearly $15,000 in equity. The seven states shown in Figure 2 had equity gains over the past year, but California and Nevada stand out with the largest gains at $37,000 and $23,000, respectively.
 Adjusting for inflation, U.S. home prices 16.4 percent below their peak in September 2017. The Consumer Price Index (CPI) Less Shelter was used to create the inflation-adjusted HPI.
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