|
Home Prices Approaching a Bottom in Period Ahead
 While the Federal Housing Finance Agency reported that home prices in February registered their first consecutive monthly gain in two years, FHFA Chief Economist Patrick Lawler cautioned it is far too early to conclude that home values have bottomed out.
“There may be issues associated with the foreclosure moratorium. In January and February there were a lot fewer foreclosures than in previous months,” Lawler said while discussing current home price trends in a panel discussion at last week’s NAHB Construction Forecast Conference.
He also added that the FHFA calculated more transactions in areas across the nation where home prices are doing better. “That helped push up prices some,” he said.
From the fourth quarter of 2007 through the fourth quarter of 2008, FHFA reported that home prices fell 8% nationally, Lawler said, while the S&P Case-Shiller Home Price Index reported a drop of 18%.
Part of the discrepancy, Lawler said, is that the FHFA uses the prices of homes backed by mortgages or sold by Fannie Mae and Freddie Mac, and that subprime, jumbo and FHA mortgages are not included in the agency’s home price index. Another difference is that the FHFA encompasses rural areas while the S&P/Case-Shiller home price data are concentrated on major metropolitan markets.
Pointing out that distressed sales accounted for 50% of the total in California during the last quarter of 2008, Lawler added, “we have fewer distressed sales in our index than Case-Shiller.”
A study last year by the Federal Deposit Insurance Corporation (FDIC) to ascertain the total number of home-price boom-and-bust markets found that of 104 markets that experienced a “boom” in 2006, just three were still considered boom markets in 2008 and only one, Detroit, was listed as a “bust.”
 The analysis defined a boom market as one that had experienced a real price gain of 30% or more in three years. A market was considered a bust if had posted a nominal price decline of at least 15% in five years.
“The data show that home prices are essentially where they were in 2003,” said Richard Brown, chief economist of the FDIC.
Citing the S&P Case-Shiller Future Prices Index, Brown said that futures prices, which have lagged actual home price declines, suggest a floor in U.S. home prices by early 2010.
To help shore up home prices, Brown said a broader stabilization of the financial system — including policies to provide liquidity to mortgage markets and bolster the capital of banks — is necessary to provide more mortgage credit and to get financial institutions to start lending again. He also said that the number of foreclosures must be whittled down “to arrest some of the downward pressure on home prices.”
Photos by Morris Semiatin
|
