Learn. Share. Connect. (51,922 Members)  - Join
 


Site Tools

Join Now or Sign In
for Full Access to All Features
Mortgage Rates
30 Yr FRM 4.98% -0.05%
15 Yr FRM 4.40% -0.06%
1 Yr ARM 4.47% -0.10%
5/1 Yr ARM 4.35% -0.07%
30 YR Tres 4.40% -0.01%
Fed Prime 3.25% 0.00%
Receive Free Email Alerts
Stay up to date on breaking news and blog posts with our free News Alert Service

Home Price Appreciation Slowing But Has Not Stopped

by Glenn Setzer on
 Email Page (New!)   |     Print   |     Bookmark

The OFHEO House Price Index (HPI) usually doesn't get too much attention (except here where we regard it as the best, or at least the most interesting of the periodic housing indicators) but this time around people began anticipating it days before it was actually issued and there was speculation that it would be the harbinger of really bad news to come.

The Index, however, did not show a nationwide drop in housing prices as had been expected, just the smallest increase in many years.

The HPI tracks average house price changes from repeat sales or refinancings of the same single family houses as obtained from data collected and maintained by Freddie Mac and Fannie Mae. The data base contains information on more than 33 million repeat transactions over the last 32 years and the "purchase only" index is based on 4.9 million transactions.

The HPI rose only 0.1 percent in the second quarter of 2007 compared to the first quarter and was the lowest price increase since the fourth quarter of 1994 when the change was -0.23. The second quarter of 2007 showed a price increase of 3.2 percent since the second quarter one year ago. This is the smallest annual price change since 1996-1997 when, for four consecutive quarters the increase year-over-year was at or below 3 percent.

The second quarter price appreciation for homes that were purchased (eliminating data on refinancing) was even lower year-over-year, increasing 2.6 percent. The increase between the first and second quarter was slightly higher than the HPI at 0.5 percent seasonally adjusted.

It is worth noting, as the report does, that the reporting period ended in June, before the recent mortgage market instability which could be reflected in the next HPI report in November.

Even though the pace of price increases has slowed appreciably from that which has been seen over the last few years, it is still running ahead of non-housing goods and services as reflected in the Consumer Price Index. House prices rose 3.2 percent over the past year while the price of others goods and services rose 2.1 percent.

OFHEO Director James B. Lockhart said about the report, "House prices were basically flat in the second quarter despite tightening credit policies, rising foreclosure rates, and weakening buyer sentiment. Significant price declines appear localized in areas with weak economies or where price increases were particularly dramatic during the housing boom."

Utah ranked number one on the basis of a one year price appreciation of 15.28 percent and second for the quarter with prices up 2.66 percent. Wyoming led for the quarter at nearly 3 percent and a yearly appreciation of 12.84 percent. These were the only two states in double digits for the year with Washington, Montana, and New Mexico following behind at 9.12, 9.06, and 8.81 percent respectively.

At the bottom of the heap were Rhode Island with a decline for the year of 0.97 percent and a quarterly loss of 1.74, followed by Massachusetts (-0.99 and -1.09), California (-1.38, -1.21), Michigan (-1.42, -1.43); and Nevada (1.45, 1.62.) Four of these five states were among those that experienced stratospheric increases over the last five years while Michigan never seems to catch a break in good years or bad. These five states with price declines represent the largest number of states in negative figures since 1996-1997.

On a regional basis, the West South Central and the Mountain Census Divisions again had the strongest housing markets with appreciation over the last year of 6.3 percent and 6.1 percent according to the HPI and 5.6 percent and 6.7 percent for the purchase only index.

The New England Census Division continues to have what the report calls "the most anemic" price appreciation at 0.5 percent for the last four quarters. This was more than a full percent below the runner-up East North Central Division.

The Metropolitan Statistical Areas (MSAs) with the greatest appreciation between the second quarters of 2006 and 2007 were Wenatchee, Washington (23.5 percent); Provo-Orem, Utah (18.2 percent); and Salt Lake City, Utah (16.0 percent.) Those faring the worst were all in California; Merced (-8.7 percent), Santa Barbara-Santa Maria-Goleta (-8.1 percent), and Stockton (-7.2 percent).

The report, as always, contains specific information not only on 287 "ranked" MSAs but on many smaller urban areas as well. To see how house prices in your vicinity may be doing, log on to www.ofheo.gov.


Comments

Join Now or Login to Post Comments

B
on
To sam who wanted to understand property valuations (aka appraisals). Replacement Cost Method is determined by what it will cost to build that home today-Usually determined using square footage of the home and a cost per square foot to build that is applicable. The Income Approach is most commonly used on investment properties and values the property based on what income (aka rent) can be received. see next posting for comparable method.

Comparison Method' is the method most commonly used as the best value method by lenders uses recent sales of similiar properies in the area. Adjustments (plus and/or minus) are made to make each property comparable to the one being evaluated and determine the value. For example, a comparable property would have an adjustment to compensate for a higher or lower square footage than the subject property being valued.