Home Price Growth, Including Distressed Sales, Continues to Stabilize

When figuring in distressed sales (short sales and REO transactions), home prices jumped by 5.6 percent year-over-year in February, according to CoreLogic's February 2015 Home Price Index released on Tuesday. February's increase marked 36 consecutive months of year-over-year increases in home prices, including distressed sales.

CoreLogic Chief Economist Frank Nothaft said home price growth has been stabilizing since the second half of 2014 due to the dwindling supply of affordable housing. Anand Nallathanti, President and CEO of CoreLogic, said the recent home price appreciation is the "hottest" the housing market has experienced prior to spring in nine years - since before the recession.

"Assuming a benign interest rate environment and continued strong consumer confidence, we expect home prices to rise by an additional 5 percent over the next 12 months," Nallathanti said.

Excluding distressed sales, home prices increased by 5.8 percent year-over-year and 1.5 percent month-over-month in February, according to CoreLogic. The total number of short sales appears to be on the decline, according to data released by Black Knight Financial Services on Monday. Short sales declined by 45 percent year-over-year in 2014, and REO transactions decreased by 16 percent. The average short sale discount in 2014 was 23 percent, according to Black Knight, meaning that properties in short sales sold for 77 cents on the dollar compared to traditional market sales. The peak for short sale discounts was reached in July 2013, at 25.3 percent, according to Black Knight.

For the short term, CoreLogic predicted that home prices, including distressed sales, would appreciate by 0.6 percent from February to March and by 5.1 percent (plus or minus 2 percent) year-over-year from February 2015 to February 2016. Excluding distressed sales, home prices are expected to increase by 0.5 percent month-over-month from February to March and by 4.8 percent (plus or minus 2 percent) year-over-year from February 2015 to February 2016.

Even with the recent home price appreciation, prices are still 12.2 percent below their peak, which was reached in April 2006. Excluding distressed sales, home prices were still 7.8 percent below that peak month of April 2006, according to CoreLogic. Nevada was the state with home prices furthest below its peak value, at 35.4 percent. The state with the largest year-over-year home price appreciation, including distressed sales, was Colorado at 9.8 percent.