Home prices rise above forecast, but growth is expected to slow

Home prices defied expectations in 2020 — increasing by more than double 2019's rate — but they are expected to appreciate at a much slower pace in 2021, CoreLogic said.

December's CoreLogic Home Price Index found values increased by 9.2% in 2020. This is the highest annual change in the Index since February 2014.

The year-over-year change for December 2019 over 2018 was 4%, according to a February 2020 CoreLogic report, which also predicted that by this past December prices would be 5.2% higher on an annual basis.

Because the housing market’s outlook was bleak in March and April due to the pandemic's effect on economic activity, it appeared even achieving that growth might have been difficult. CoreLogic's HPI report for March 2020 predicted meager price growth of 0.5% over the following 12 month period.

"At the start of the pandemic, many braced for a Great Recession-era collapse of the housing market," Frank Martell, president and CEO of CoreLogic, said in a press release this week. "However, market conditions leading into the crisis — namely low home supply, desire for more space and millennial demand— amplified the rapid acceleration of home prices."

The average annual monthly change in the CoreLogic HPI during 2020 was 5.7%, compared with 3.8% during 2019.

Still, while the 2021 home sales environment is supposed to be strong — as evidenced in the Mortgage Bankers Association's prediction for a record year in home purchase origination volume — CoreLogic is forecasting prices to rise by only 2.9% by next December.

And it is that strong market that could be holding the price gains down.

"Two record lows are fueling home price gains: for-sale inventory and mortgage rates. Prospective sellers with flexible timetables have opted to delay listing their home until the pandemic fades or they are vaccinated," said Frank Nothaft, CoreLogic's chief economist. "We can expect more inventory to come available in the second half of the year, leading to slowing in price growth toward year-end."

Until the inventory shortage is alleviated there might be rising affordability concerns that end up pricing some buyers out of the market, CoreLogic said.