House Price Depreciation May Be Easing Off
All measures of national average house prices have shown stunning declines from the unsustainable highs of 2006 to 2007. These declines have taken a heavy toll on household wealth, as well as on the quality of mortgage credit and the strength of financial institutions while restoring the affordability of home buying to a large degree.
Recent readings on home price behavior are quite a mixed bag, with some measures showing continuation of rapid rates of price depreciation while other measures are suggesting a significant slowdown in the rate of decline.
Stabilization of house prices is essential to a sustained economic recovery and, on balance, available evidence suggests that most of the house price correction now is behind us.
The S&P/Case-Shiller repeat-sales National Home Price Index was down by a record 19.1% in the first quarter of this year, compared with a year earlier, and the seasonally adjusted annual rate of decline for the quarter came to 24.9% — also the largest on record.
This measure now is down by 32% from the peak in the first quarter of 2006 and has returned to the level prevailing at the end of 2002 — prior to the unsustainable surge in home prices.
The repeat-sales purchase-only national House Price Index produced by the Federal Housing Finance Agency (formerly OFHEO) fell by 7.1% in the first quarter compared with a year earlier, and the seasonally adjusted annual rate of decline for the quarter came to only 2.2%.
This measure now is down by 10.4% from its peak in the second quarter of 2007 and has returned to the level prevailing in the first quarter of 2005.
The median price of existing single-family homes sold in April was down by 14.9% compared with a year earlier, paced by a 21.8% decline in the West. This measure, unlike the two repeat-sales measures discussed, is not available on a seasonally adjusted basis and changes in median prices are subject to compositional shifts, but it appears that the most recent rates of decline are not as severe as those recorded last year.
The major house price declines that now are under our belts have restored price/income and price/rent ratios to normal levels in many places and have combined with favorable mortgage rates to boost affordability considerably.
The improvements in home sales that we’re projecting should help stabilize home prices before long, assuming that government efforts to weaken the foreclosure wave prove to be successful. [return to top]