House Price Performance Was ‘Mixed’ Early This Year
Widely different signals are being thrown off by available measures of house prices for the early part of this year. Indeed, some of the reported price changes really challenge credibility, particularly the purchase-only repeat-sales National House Price Index (HPI) produced by the new Federal Housing Finance Agency (formerly OFHEO).
The FHFA’s HPI showed a 22% rate of increase (seasonally adjusted annual rate) from December to January — a reading that makes little sense in a housing market with weak demand, a lot of excess supply and a lot of foreclosures.
In fact, FHFA attributed most of the measured price surge to a sizable change in the geographic mix of homes sold and financed with loans salable to Fannie Mae or Freddie Mac. FHFA also cited low sales volume in January and suggested that significant revisions to the HPI for that month are quite likely.
Another prominent repeat-sales measure of house price change, the S&P/Case-Shiller 20-City Composite Home Price Index, showed a 23% rate of contraction (seasonally adjusted annual rate) in January, as all 20 cities posted month-to-month declines.
This rate of decline is one of the largest on record and suggests that the contraction in house prices still was picking up steam as this year began.
It’s important to note, however, that the S&P/C-S index measures price change for repeat-sale transactions occurring in the three-month period ending in January. There was a surge in foreclosure sales in many areas of the country in the last few months of 2008 and the first month of 2009, and the S&P/C-S measure for January most likely was driven down by this pattern of sales at deeply discounted prices.
It’s difficult to forecast house price change. However, it’s noteworthy that recent declines in both house prices and mortgage rates have driven up measures of housing affordability to record highs, that starts of new homes for-sale are down to rock bottom levels and that some indicators of housing demand (including NAHB survey measures) have shown improvement recently.
If these trends continue, it’s entirely possible that key national measures of house prices will be stabilizing by the end of this year as the national economic recession runs its course. [return to top]