BofAML: Home price slowdown is snapback from outsized gains

Past three months had the first negative MoM returns since Dec. 2011

Bank of America Merrill Lynch believes that Tuesday’s report from CoreLogic (CLGX) on the general slowdown in home price gains is more the pendulum swinging back from outsized gains than a general weakness.

CoreLogic’s June home price index shows that home prices nationwide, including distressed sales, increased 7.5% in June 2014 compared to June 2013, reflecting a general slowdown that CoreLogic says will worsen through June 2015.

CoreLogic says that home prices, including distressed sales, increased 0.7% month over month from June 2014 to July 2014 and, on a year-over-year basis, by 5.7% from June 2014 to June 2015.

The annualized rate slowed from the peak of 11.9% in February 2014. The non-distressed index rose 6.9% YoY.

Click the graph to enlarge. 

“We think part of the recent decline in home prices is simply a reversal from the outsized gains realized in the first quarter of the year, and not a start of a prolonged period of price declines,” BofAML analysts say. “These recent prints are consistent with our call for home price appreciation to slow this year and we are still looking for full- year 2014 returns to come in at 5.2% [comparing fourth quarters.]”

The annualized, seasonally adjusted month-over-month HPA for the total index turned negative coming in at -2.4% on a seasonally adjusted annualized basis.

In addition, both April and May were revised down to also show negative month-over-month changes. The May MoM reading was revised down 4.3 percentage points to -2.6% while the April reading was revised down further to -1.1% from an initial reported level of 7.2%, a decline of 8.3 percentage points.

Since hitting a post-crisis peak in March 2014, the seasonally adjusted HPI has retreated by 0.52%. The past three months are the first negative MoM returns since December 2011.

The non-distressed index also showed a MoM annualized decline of 2.1%. However, the non-distressed seasonally adjusted index remains flat to the March 2014 reading.

Home prices increased MoM in 12 of the 20 MSAs tracked in our report on a SAAR basis. New York showed the largest decline of 5.9% relative to a gain of 24.24% posted in May.

In addition to New York, other MSAs with negative readings included Atlanta (-2.6%), Chicago (-2.2%), Cleveland (-1.1%), Minneapolis (-3.2%), Phoenix (-1.2%), AND Washington DC (-1.2%).

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