1. 2011 was a very poor year for sales and prices, so 2012 increases over 2011 reflect a very low base to start from.
2. "[T]he year-on-year increase in broad-based housing price indices has been largely driven by a shift in the composition of sales rather than appreciation in the value of individual properties."
3. "We believe this shift in sales mix has been driven by institutional investors seeking to build large portfolios of rental properties."
Here's their release:
It has been widely reported that housing price metrics have increased considerably over the last year, but we believe the public discussion has missed a critical point. While the 25-MSA RPX Composite price has increased considerably over the last year (9.2 percent as of November 21) this gain must be viewed in the context of unseasonable weakness during the second half of 2011.
In each year since the end of the housing boom, the RPX Composite has weakened during the second half of the year. In 2011, it weakened more than usual. Exhibit 1 shows the percentage change in the RPX Composite price from July 1 through the date designated on the X-axis for each year from 2009 to 2012. The RPX Composite fell seven percent through November in 2011, further than in any other year since 2009. Exhibit 2 widens the context by comparing the changes in the RPX Composite from July 1 to November 21 for each year from 2000 to 2012, covering the entire history of RPX data. The decline in 2011 was the third largest behind 2007 and 2008, when home prices were in free-fall during the housing bust. So when we talk about a 9.2 percent year-over-year gain in the RPX Composite, it is a gain off an unusually low base.
It does not simply reflect strength in housing prices during the 2012, but also extreme weakness in housing prices during the second half of 2011. If the RPX Composite price had followed a more typical seasonal pattern during 2011, the year-on-year gains in November 2012 would not have been nearly so large. Moreover, as we explained in the 2012 RPX Year In Review published last week, the year-on-year increase in broad-based housing price indices has been largely driven by a shift in the composition of sales rather than appreciation in the value of individual properties. As shown in Exhibit 3, REO sales and foreclosure auction sales (i.e., "motivated sales") have declined from 24 percent of the 25-MSA RPX transaction count in November 2011 to 12 percent in November 2012. Over the same period, the 25-MSA composite price for motivated sales was 32 to 39 percent lower than the composite price for all other sales.
When we control for the shift in the mix of sales by looking solely at the composite price for non-motivated sales, we find that home prices increased at slightly over half the rate of the RPX Composite price. We believe this shift in sales mix has been driven by institutional investors seeking to build large portfolios of rental properties. These investors have temporarily reduced the available supply of desirable REO properties and driven up prices to the point where many investors have turned to other segments of the housing market in search of properties. The problem is there are still a historically large number of homes in the foreclosure process and on their way into REO inventories. If they enter the market in sufficient quantity, they could drive down REO prices to a point where investors will shift their attention back to foreclosures and REO. Motivated sales would then increase as a percentage of total sales, and home price indices would start to fall once again.