Conflicting signals from the US housing market are nothing new. For every forecast that the situation is improving, there is at least one competing forecast that things are getting worse. Today we get some good news from the Federal Housing Finance Agency (FHFA) which regulates Fannie Mae, Freddie Mac, and the dozen US Home Loan Banks.
According to the FHFA, house prices rose 0.4% sequentially in May, compared with a revised rise of 0.2% in April. The original figure for April was a rise of 0.8%. That change by itself urges caution in accepting the rise claimed for May. But the report also raises a question about what’s actually happening in the housing market.
The latest S&P Case-Shiller report indicated a drop of -3% to -4% in home prices in the nation’s 20 largest housing markets during the month of April. Schiller has said that US housing prices could drop a total of -10% this year.
More bad news comes from RealtyTrac, which says that foreclosures in 2011 could reach 4 million, not including the more than 5 million loans that are delinquent and not yet in foreclosure. The more home that are foreclosed, the more weight added to housing prices.
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In the first quarter of 2011, FHFA reported a median price on existing homes of about $158,000, down from nearly $190,000 in the previous quarter. The agency’s forecast for the second quarter is that prices will rise to about $166,000, but its hard to see how that will happen with so many properties going on the block.
New home prices did rise a bit in the first quarter, according to the agency. The median price for a new home rose from about $222,000 to $224,000. The catch is that only 30% of mortgages in June were taken out for a home purchase. That’s the lowest number in two years. The 70% of loans taken out for refinancing was also the lowest in the last four quarters.
Sales are falling, foreclosed properties are dragging prices down, and the number of foreclosures is on the rise. The FHFA claim of rising prices does not really square with any of these facts. The discrepancies probably come down to the relatively small numbers that FHFA is reporting on. If just 30% of mortgages goes to a home purchase, and the price for new homes is about 1% higher, a home price that is 0.4% higher is not showing us much at all.
One other factor may be that FHFA figures include every region of the country as compared with the 20 largest markets tracked by the Case-Shiller Index. In today’s report, for example, FHFA notes that prices in its Mountain Division are up 2%. The Mountain Division includes Montana, Idaho, Wyoming, Nevada, and New Mexico, where housing prices have been buoyed either by booming mineral extraction or second-home purchases.
Exactly what accounts for the discrepancy probably matters less than its size, which is really quite small. The FHFA June report notes that the FHFA Index of housing prices for the first quarter is down -5.6% year-over-year for purchases. If the foreclosure numbers are accurate, a year-end decline of -10% as Shiller suggests is clearly possible.
Paul Ausick
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