Report: Price Gains Driven by Composition Changes, Not Appreciation

After tracking home price trends in 25 metropolitan statistical areas (MSAs), ""Radar Logic"":http://www.radarlogic.com/ found prices in October are now 6.9 percent higher than a year ago, according to the company's RPX Composite price.

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""However, this increase was driven by a change in the composition of sales rather than price appreciation,"" Radar Logic stated in a recent ""report"":https://premiumresearch.radarlogic.com/ProductDetails.asp?ProductCode=RPXMHMR-OCTOBER.

Upon closer scrutiny, the analytics company explained the price increase is mainly the result of a decrease in distressed sales, or ""motivated sales,"" and the actual price increase for ""non-motivated sales"" is much smaller than the overall yearly gain.

For example, the report points out that as of October, 23 of the 25 MSAs saw a decline in sales of foreclosures and REOs. And, motivated sales represented just 13 percent of all sales in the 25 MSAs, down from 24 percent a year ago. In addition, motivated sales were priced 32 percent lower than non-motivated sales in the 25 metros.

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""The decline in relatively low-priced motivated sales as a percentage of total sales has put upward pressure on RPX prices for many MSAs, as well as the RPX Composite,"" the report explained.

While the composite follows trends in just 25 MSAs, Radar Logic says it suspects the same holds true for most major housing indexes.

When non-motivated sales are observed separately from motivated sales, Radar Logic found ""prices in such sales have not increased nearly as much as the aggregate figures suggest.""

For non-motivated sales, prices increased 2.7 percent during the same time period, less than half of the overall RPX composite, the report noted.

However, Radar Logic added that non-motivated sales actually include short sales, so increasing short sales can bring down the overall price of non-motivated sales since short sales also sell at a discount.

Among individual metros included in the RPX Composite price, Washington D.C. posted a significant 10 percent yearly increase, but the gain in non-motivated sales was just 1.5 percent. The report says the increase in D.C. is largely due to the decrease in motivated sales, which fell from 16 to 8 percent.

In Atlanta, the RPX price increased 4 percent from last year, but non-motivated prices actually decreased by 4.3 percent. Radar Logic says this shows the increase ""is almost entirely attributable to the decline in motivated sales,"" which fell from 28 percent to 19 percent.

On the other hand, San Jose saw a 12.9 percent yearly increase in non-motivated sales, with the overall increase at 14.2 percent. Motivated sales for the metro decreased from 14 percent to 7 percent.

The report says Chicago, Milwaukee, and Phoenix displayed similar patterns.