Lender Processing Services Inc.’s Applied Analytics division updated its home price index (LPS HPI) with residential sales concluded during December 2011. Beginning next month (transactions of January 2012), the report will be based on an updated view of market structure.

“Following the real estate bubble, the proportion of short-sale transactions is much higher than historically observed,” said Raj Dosaj, vice president of LPS Applied Analytics. “Other HPI suppliers have not updated their analyses in the face of increased short-sale transactions. Identifying and correctly accounting for short-sale price discounts produces an HPI that better represents non-distressed sales.”

The LPS HPI national average home price for transactions during December 2011 reached a price level not seen since September 2002. This is the sixth consecutive month of price decreases. LPS HPI national average home price in November 2011 was $199,000. In December 2011, the average was $197,000.

The LPS HPI November report estimated December’s change at -0.8 percent, a somewhat smaller decline than was observed. LPS HPI average national home prices continued the downward trend begun after the market peak in June 2006. During the period of most rapid price declines, from June 2007 through December 2008, the LPS HPI national average home price fell at an average annual rate of 13.8 percent. Since December 2008, prices have fallen more slowly at an average annual rate of 4.4 percent.

Other HPI suppliers have also reported strong seasonal variations in the post-bubble market. LPS has found that while seasonal variations occur in the market for un-distressed home sales — due to school schedules, for example — short sales do not vary over the year nearly as much.

The apparently significant seasonal effects LPS and others have reported are a consequence of the large proportion of short sales among home sales after the bubble. These sales have been treated as if they experienced typical seasonal variations and thus they exaggerated seasonal price variations. Beginning next month with the updated LPS HPI, non-distressed prices will show milder seasonal variations, more consistent with previous years.

Price changes were largely consistent across the country during December, increasing in only 8 percent of the ZIP codes in the LPS HPI. Price changes were also consistent across price tiers with a uniform decline of 1 percent.

Changes during December were largely consistent among metropolitan statistical areas (MSAs). Of the 411 MSAs the LPS HPI covers, average prices declined for all of the MSAs (374) in 44 states. In addition, while average prices did not decline for all MSAs in the remaining states, prices fell in a total of 402 MSAs out of the LPS HPI 411.

Among the MSAs for which both LPS and the Bureau of Labor Statistics provide data, only Phoenix and Miami saw average prices increase during December. Many of these MSAs saw decreases during December. San Francisco, San Diego, Detroit, Chicago and Atlanta all declined by more than 1.5 percent.

“Despite the broad picture of home price declines following the bubble, prices have not been consistently declining for all MSAs in the country. About one-fifth (89) of all the MSAs that LPS covers has seen average home prices increase since December 2008,” Dosaj said. “For 90 percent of these MSAs, prices rose only if the lowest-priced homes in their markets rose. This correlation did not necessarily hold for higher-priced homes in those areas. Unfortunately, the MSAs that have seen price increases since December 2008 are generally relatively small; Boston and Pittsburgh are exceptions.”

Examples of MSAs that have seen increases in average home prices since December 2008 on the larger end of the spectrum are: Springfield, Mass., Albany, N.Y., Brownsville, Texas, and Hot Springs, Ark. States with the highest percentage of MSAs whose prices increased are mostly in the West North Central Census Division —Minnesota, Missouri and Nebraska — and in the Middle Atlantic Division — New York and Pennsylvania.

The median LPS total market collateral of these smaller MSAs that have seen average home prices increase is $13.7 billion.