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Th e M Rep o RT | 49 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ANALYTICS The laTesT Home Price appreciation slows to 5.6% Study shows most of the falloff has been from upper-end homes in the market's higher tier. H ome price growth continued in Sep- tember on an annual basis, while monthly returns stagnated, CoreLogic reported last month. Including distressed sales, the company's Home Price Index (HPI) increased 5.6 percent in September compared to the year prior, bringing the index's yearly growth streak to 31 straight months. September's increase compares to a gain of 6.4 percent reported for August. On a monthly basis, however, the index fell back 0.1 percent. Removing short sales and REO transactions, CoreLogic's HPI grew 5.2 percent annually in September, with monthly growth nearly flat at 0.1 percent. At the state level, CoreLogic reports all states posted year- over-year home price appre- ciation (with distressed sales included). In fact, the company says 28 states and the District of Columbia are now at or within 10 percent of their price peaks, and five states—Colorado, Nebraska, North Dakota, South Dakota, and Texas—have reached new highs. Michigan and Montana out- paced all the other states with annual growth rates of 10.3 percent and 10 percent, respectively. They were the only two states to report double-digit appreciation in the last 12 months, illustrating just how much growth has fallen off since last fall. Most of that slowdown has occurred in the market's higher tier, CoreLogic says. "There has been a clear bi- furcation in home price growth for lower-end versus upper-end properties in 2014," said Sam Khater, deputy chief economist at CoreLogic. "As of December 2013, both lower-end and upper- end property prices were up 9.7 percent on a year-over-year basis. As of September, lower-end prices were up 9.4 percent, but upper-end prices were up only 4.5 percent." Over the next year, CoreLogic's forecast calls for an even 5-percent growth rate. The non-distressed index is expected to slow slightly further, falling to 4.6 percent by this time in 2015. "Home prices continue to rise compared with this time last year but the rate of growth is clearly slowing as we exit 2014," said Anand Nallathambi, presi- dent and CEO of CoreLogic. "With more positive macro- economic trends emerging in the U.S., we are forecasting moderate mortgage apps rise on strong refi activity The upturn in refinances, however, is expected to be short-lived as the Fed starts to put upward pressure on rates. a sharp upturn in refinancing helped push mortgage application volume to a double-digit gain in Oc- tober even as purchase loan demand continued to fall. According to an examina- tion of application statistics by the macroeconomic research firm Capital Economics, total mortgage application volume jumped 10.1 percent in October, bouncing back after four straight months of declines. The firm's report is based on numbers released weekly by the Mortgage Bankers Association (MBA). The headline measure received a major boost from refinance applications, which were up 18.5 percent month- over-month to arrive at an eight-month high. Since falling off last year, refinances have picked up recently as average fixed- mortgage rates sank to their lowest levels in nearly a year and a half. By MBA's measure, the average 30-year fixed rate for the month of October was 4.19 percent. However, with the Federal Reserve expected to start putting upward pressure on interest rates in the near future, the recent comeback in refinancing isn't expected to last. Indeed, MBA's measure for the last week of October showed refinance application volume fell 6 percent week- over-week as the average 30-year rate moved upward to 4.17 percent. "[R]efinancing activity cannot increase much further without a sustained decline in mortgage rates, which is not on the cards," said Paul Diggle, property economist at Capital Economics. As refinances spiked, home purchase applications con- tinued to languish, dipping 0.5 percent after a gain of the same amount in September. The decline in that measure lines up with the Federal Reserve's most recent Loan Officer Opinion Survey, which showed demand for mortgages dropping on net in all loan categories. The ongoing weakness in the purchase loan index— considered a key indicator of consumer demand for housing—has been a major source of concern for market participants as refinancing has come down from its boom. Still, Diggle remains hopeful. "Lenders responding to the Senior Loan Officer Survey reported loosening standards on mortgage credit for the second consecutive quarter," he said. "Alongside strong job growth and signs that income growth is finally picking up, there are grounds to think that mortgage demand will rise from here." "With more positive macroeconomic trends emerging in the U.S., we are forecasting moderate price growth for 2015." — Sam Khater, CoreLogic