Home Prices Up 4.6%, Expected to Continue Rising

Home prices rose 4.6% on a year-over-year basis in August, according to CoreLogic’s monthly home price index (HPI) released Tuesday. And prices are expected to rise again in September based on the data, says CoreLogic’s chief economist. 

“Again this month prices rose on a year-over-year basis and our expectation is for that to continue in September based on our pending HPI forecast,” said Mark Fleming, chief economist for CoreLogic. “The housing markets gains are increasingly geographically diverse with only six states continuing to show declining prices.”

The August uptick marks the sixth consecutive increase in home prices nationally on a year-over-year and month-over-month basis and the greatest increase since July 2006. Regionally, the states with the greatest August increase including distressed sales were Arizona, Idaho, Nevada, Utah and Hawaii.

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The home price data supports a slow economic recovery, CoreLogic says. 

“Sustained economic recovery in the U.S. requires a healthy housing market. You cannot have a healthy housing market without price stabilization and ultimately home price appreciation,” said Anand Nallathambi, president and CEO of CoreLogic. “Improving pricing trends over the past few months and our forecast for continued gains in September bode well for a progressive rebound in the residential housing market.”

Written by Elizabeth Ecker

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  • Have your prospects been considering the REX Agreement or have you been recommending it?

    Let us say that the average home goes up 4.6% per annum for the next five years.  What implications does this have for a product like the REX Agreement?  Let us say a home is worth $1,000,000 (easy number to work with).  The 50% appreciation option is selected and $100,000 (20% times 50% times $1,000,000) will be paid out to the owner at closing.
     
    The value of the home in the example in five years will be about $1,250,000.  That means that if the home is sold the very next day and the REX Agreement had been in place for at least 5 years plus one day, FirstREX would be paid $225,000 from the proceeds (return of the $100,000 paid upfront plus $125,000 of the $250,000 of appreciation).

    The cost of the $100,000 to the homeowner would be 17.6% per annum assuming the REX Agreement has been in place for exactly five years and one day.  If the limited exclusion on the gain on sale of a principal residence applied to the gain on sale, the after-tax cost would 17.6%.  This is why in a rising market the REX Agreement is profitable to FirstREX but a HECM could be a much better option for the homeowner.

    To understand the implications of products like the REX Agreement, numbers must be run and returns and costs determined on an annualized basis.  So if an annualized 4.6% home appreciation rate results in a 17.6% annualized cost to the homeowner, how much would an average 8% annualized home appreciation rate cost that same homeowner assuming the same variables?  First the value of the home would be about $1,469,000 so that the payoff to FirstREX would be $334,500 for an annualized gross cost of 27.3% for using $100,000 for just five years and one day.  Even if a 15% long-term capital gains rate applied to the $234,500 paid to FirstREX, the net after tax cost would still be 23.2% on an annualized basis.

    In the right situation the REX Agreement is an amazingly great product but in a rising home appreciation market, its costs can be quite high.

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